The welfare cost of an inflation shock on consumers: who loses the most?

Sónia Cabral and António Rua

Macroeconomic Dynamics, 2026, vol. 30, -

Abstract: After a period of stable prices in advanced economies, inflation surged in 2022, largely driven by substantial increases in international food and energy prices. Using electronic payments data to estimate a demand system, we derive expenditure and price elasticities and evaluate the welfare effects of these relative price changes for Portuguese consumers. Our results indicate an average welfare loss of approximately 10% of total expenditure, disproportionately affecting lower-spending consumers. Furthermore, we observe that lower-expenditure consumers generally have larger price elasticities than their higher-spending counterparts. These results reinforce the evidence of the unequal welfare costs of inflation on consumers.

Date: 2026
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