Who Bears the Costs of Inflation? Euro Area Households and the 2021–2023 Shock

Filippo Pallotti, Gonzalo Paz-Pardo, Jiri Slacalek, Oreste Tristani and Giovanni Violante

No 31896, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We measure the heterogeneous first-order welfare effects of the recent inflation surge across households in the euro area. A simple framework illustrating the numerous transmission channels of surprise inflation to household welfare guides our empirical exercise. By combining micro data and aggregate time series, we conclude that: (i) country-level average welfare costs –expressed as a share of triennial income– were sizable and heterogeneous: around 3% in France and Spain, 7% in Germany, and 9% in Italy; (ii) this inflation episode resembles an age-dependent tax, with the retirees losing up to 14%, and roughly half of the 25–44 year-old winning; (iii) losses were quite uniform across consumption quantiles because rigid rents served as a hedge for the poor; (iv) nominal net positions were the key driver of heterogeneity across-households; (v) the rise in energy prices generated vast variation in individual-level inflation rates, but unconventional fiscal policies helped shield households. The counterpart of this household-sector loss is a significant gain for the government.

JEL-codes: E31 E58 G51 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-eec, nep-eur and nep-mon
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Published as Who Bears the Costs of Inflation? Euro Area Households and the 2021–2023 Shock , Filippo Pallotti, Gonzalo Paz-Pardo, Jiri Slacalek, Oreste Tristani, Giovanni L. Violante. in Inflation in the COVID Era and Beyond , Ball and Gorodnichenko. 2024

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Chapter: Who Bears the Costs of Inflation? Euro Area Households and the 2021–2023 Shock (2024)
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