The well-being cost of inflation inequalities

Alberto Prati

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In terms of well-being, how costly is inflation? To answer this question, empirical evaluations have typically studied average inflation rates at the national level, thus disregarding the role of inflation inequalities within a country. In this article, we relax the assumptions that heterogeneous consumers face homogeneous inflation rates, and study the correlation between price changes and self-reported satisfaction with living standards. We use newly available data from France and adopt two approaches. First, we focus on individually perceived inflation and use the internationally harmonized Opinion Price Index as a proxy for experienced inflation. Variations in perceived inflation help predict well-being differences among consumers, even when controlling for relevant sociodemographic factors, personality traits, and common method variance. We estimate their marginal impact to be higher than equivalent variations in nominal income. Second, we compare groups of consumers over time and find that changes in the price of a good disproportionately affect the relative well-being of those who consume it. The study shows that the well-being cost of the inflation crisis would be underestimated if looking at aggregate figures only.

Keywords: heterogeneous inflation; inflation inequality; Opinion Price Index; perceived inflation; standard of living; subjective well-being (search for similar items in EconPapers)
JEL-codes: D63 E31 I31 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Review of Income and Wealth, 2023. ISSN: 0034-6586

Downloads: (external link)
http://eprints.lse.ac.uk/117919/ Open access version. (application/pdf)

Related works:
Journal Article: The Well‐Being Cost of Inflation Inequalities (2024)
Working Paper: The well-being cost of inflation inequalities (2022)
Working Paper: The well-being cost of inflation inequalities (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:117919

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