Poor households and the weight of inflation

Jan Schulz-Gebhard and Leonhard Ipsen

No 205, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: We argue that most of the existing literature on inflation inequality misses an essential source of disparity by focusing on differences in expenditures while ignoring the effect of a price change on the purchasing power of households' incomes. As a remedy, we propose weighting price changes by income rather than by expenditure, as is commonly done. We theoretically derive why, under incomeweighting, lower-income households are disproportionately affected by any change in prices. This proposition is validated empirically for 21 EU countries using current sector-level input-output data. Our approach allows to reconcile the conflicting evidence in the literature on inflation inequality regarding structurally higher inflation perceptions and expectations of lower-income households. Ultimately, these findings call for a broad reassessment of current approaches to measuring inflation and income inequality.

Keywords: Inflation; Inequality; Input-output Analysis; Europe (search for similar items in EconPapers)
JEL-codes: C15 C67 D31 D90 E31 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:319883

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