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 L. Violante

Journal of Monetary Economics, 2024, vol. 148, issue S

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.

Keywords: Inflation; Redistribution; Household heterogeneity; Net nominal positions; Income; Fiscal support; Welfare (search for similar items in EconPapers)
JEL-codes: D12 D14 D31 E21 E52 E58 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Chapter: Who Bears the Costs of Inflation? Euro Area Households and the 2021–2023 Shock (2024)
Working Paper: Who Bears the Costs of Inflation? Euro Area Households and the 2021–2023 Shock (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:148:y:2024:i:s:s0304393224001247

DOI: 10.1016/j.jmoneco.2024.103671

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