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 paper, 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 wellbeing differences among consumers, even when controlling for relevant socio-demographic 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: inflation; inequality; heterogeneous inflation; subjective well-being; standard of living; perceived inflation; opinion price index (search for similar items in EconPapers)
JEL-codes: D63 E31 I31 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2022-09-13
New Economics Papers: this item is included in nep-eur and nep-hap
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Downloads: (external link)
http://eprints.lse.ac.uk/117984/ 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 (2023)
Working Paper: The well-being cost of inflation inequalities (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:117984

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