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Inflation heterogeneity and its impact on inequality: evidence from the United States

Francisco Tavares

MPRA Paper from University Library of Munich, Germany

Abstract: Aggregate inflation measures such as the Consumer Price Index seek to capture the impact on households consumption possibilities of changes in prices over time and are generally assumed as representative of all consumers. This is only true if households have all the same consumption patterns. Based on household level microdata, we construct specific household baskets of consumption and calculate the inflation for each one. By comparing Plutocratic and Democratic indexes, and inflation between groups of income, we conclude that households experienced different inflation rates, with the poorer suffering more with the loss in the purchasing power. The potential impacts of these findings on Fiscal and Monetary Policy show that around 1.77 million households could be paying federal income taxes when they should not; Social Security benefits could be up to 9.70% higher for some households; Federal Funds Rates would be 0.8 percentage points higher, based on a Taylor type rule, if FED used a Democratic core inflation index.

Keywords: Inflation; Consumer; Price; Index; Price; Indexes; Personal; Consumption; Expenditure; Price; Index; Consumption; Patterns; Consumer; Expenditure; Survey (search for similar items in EconPapers)
JEL-codes: E20 E31 E43 E52 E62 (search for similar items in EconPapers)
Date: 2021-01-04
New Economics Papers: this item is included in nep-mac and nep-mon
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Handle: RePEc:pra:mprapa:105461