 A Regressive Shock? The Distributional Consequences of Middle East Conflict-Driven Inflation for German HouseholdsMichael Christl, Andreas Peichl () and Tiphaine Wibault No 12853, CESifo Working Paper Series from CESifo Abstract: The escalation of the conflict in the Middle East in late February 2026 led to a sharp upward revision in inflation forecasts for Germany, which we attribute primarily to the conflict itself. Using microsimulation methods adapted to simulate a commodity price change, we translate this forecast revision into upper bounds on household-specific purchasing-power losses via a compensating variation approach, distinguishing the loss recovered through consumption taxes from the full loss including the pre-tax transfer to producers. Both measures are sizeable and regressive: in 2026, the average household loses 0.25% of income through the tax channel and 1.15% under the full measure, with bottom-decile losses of 0.63% and 2.87% against 0.12% and 0.65% for the top decile. The Gini coefficient rises by up to 0.14 points, and elderly households are disproportionately affected. Our results show that a supply-side shock originating outside Europe can have a sizeable and unequal impact on household living standards. Keywords: oil price shock; Middle East conflict; household welfare; distributional analysis; microsimulation; inflation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12853 Access Statistics for this paper More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC. |
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