The unequal impact of the 2021-22 inflation surge on euro area households

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

Research Bulletin, 2024, vol. 116

Abstract: The 2021-22 surprise inflation surge had a major impact on households in the euro area. It reduced the real incomes and net wealth of most households as there was no immediate increase in nominal wages and pensions, nominal house prices and the nominal value of bonds, deposits, cash and debt following the rise in the price level. This influenced households’ present and future consumption and therefore their welfare. Although poorer households suffered most from the reduction in the purchasing power of their income, overall welfare losses were especially large for retirees because of the fall in the real value of their relatively large holdings of nominal assets. Conversely, younger and heavily indebted households benefited from the reduction in the real value of their liabilities. In this sense, this inflation episode mimicked an age-dependent tax. Indeed, not everyone was a net loser: while about 70% of households suffered a loss, the rest enjoyed moderate gains. JEL Classification: D12, D14, D31, E21, E52, E58

Keywords: Consumption; Fiscal Support; Household Heterogeneity; Housing; Inflation; Labour Income; Net Nominal Positions; Redistribution (search for similar items in EconPapers)
Date: 2024-02
Note: 1111765
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