Measuring cost of living inequality during an inflation surge

Tao Chen, Peter Levell and Martin O'Connell

No 19388, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We provide new evidence that inflation inequality surged during the 2021–2023 cost-of-living crisis, driven by systematically higher price growth for lower-quality goods disproportionately consumed by poorer households. While substitution in response to relative price changes helped mitigate cost-of-living increases, it did not reverse historically high cost-of-living inequality. Declining living standards drove many households to trade down to lower-quality goods, further exposing them to the strongest price increases. Our findings have important implications for cost-of-living measurement and policymaking in an inflationary environment and underscore rising political discontent, as lower-income households face the steepest rise in their living costs.

JEL-codes: D12 D30 E31 I30 (search for similar items in EconPapers)
Date: 2024-08
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