A New Reason to Hate Grocery Inflation: Measuring and Interpreting Inflation Heterogeneity

Kelsey O'Flaherty ()
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Kelsey O'Flaherty: https://www.federalreserve.gov/econres/kelsey-j-oflaherty.htm

No 2026-001, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The 2021-2022 inflation episode presented the first opportunity to examine inflation and price dispersion using U.S. scanner data in a high-inflation environment. Data from 50,000 outlets reveals that price changes across similar goods grew more dispersed in 2022 before falling again in 2023. This paper documents how price change dispersion interacts with households’ product choices to generate substantial inflation heterogeneity. Household-level inflation rates exhibit a 1.4 percentage point interquartile range in 2019, which grew to 4.0 percentage points in 2022 before falling back to 1.6 percentage points in 2023. Households offset little of their implied budget shocks through substitution. A model with idiosyncratic preferences rationalizes household behavior and implies that households’ inflation rates represent convenient, observable bounds on their welfare losses. When inflation peaked in 2022, households at the 10th and 90th percentiles of the inflation distribution and average grocery expenditures faced welfare losses of $573 and $1,145, respectively.

Keywords: Inflation; Prices; Consumer economics; Welfare economics (search for similar items in EconPapers)
JEL-codes: D11 D12 E21 E31 (search for similar items in EconPapers)
Pages: 58 p.
Date: 2026-01-05
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:102371

DOI: 10.17016/FEDS.2026.001

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