Younger Households' Inflation Is More Responsive to Monetary Policy

Aeimit Lakdawala and Timothy Moreland
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Aeimit Lakdawala: Wake Forest University
Timothy Moreland: University of North Carolina Greensboro

No 133, Working Papers from Wake Forest University, Economics Department

Abstract: When the Federal Reserve raises interest rates, prices faced by younger households fall more than prices faced by older households. Using age-specific distributional consumer price indices together with high-frequency monetary policy shocks, we document a monotone age gradient in inflation responses, from households under 25 through households 75 and older. A simple decomposition combining BLS major-group CPI responses with age-specific CEX expenditure shares accounts for most of the gap between the youngest and oldest households. Transportation and medical care drive the result: younger households spend disproportionately on transportation (including motor fuel, vehicles, and auto insurance), whose prices respond strongly to monetary policy, while older households spend disproportionately on medical care, whose prices respond less.

Keywords: monetary policy; inflation heterogeneity; age (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 J11 (search for similar items in EconPapers)
Pages: 12
Date: 2026-04-15
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