Inflation and its diverse social consequences across the euro area

Balint Menyhert

Quarterly Report on the Euro Area (QREA), 2023, vol. 22, issue 1, 7-16

Abstract: By the end of 2022, the Harmonised Index of Consumer Prices (HICP) had reached double digits in the euro area. Since inflation has been driven mainly by soaring energy and food prices, the structure of consumption expenditure plays a crucial role in determining households’ vulnerability to ongoing price developments. Micro-level analysis of European households’ expenditure reveals substantial differences both within and between Member States. This translates into uneven increases in living costs across the euro area. Inflation inequality is particularly high in some Member States, but differences in consumption structure also explain a large part of the cross-country variability in current price trends. Household income, social and demographic characteristics and individual factors are all important determinants of the changes in living costs faced by households across the euro area. Moreover, innovative statistical methods and data allow us to quantify the potential social costs of inflation: in the absence of offsetting policy measures, wage developments and behavioural adjustments, material and social deprivation and absolute monetary poverty would have increased by up to 3 and 6 percentage points respectively in 2022. The social effects of inflation can be substantial and largely uneven. Without an effective policy response, they could widen existing inequalities within countries and across the euro area.

Keywords: inflation; energy inflation; poverty; income inequality (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0221-01

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