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Who Bears the Costs of Inflation? Euro Area Households and the 2021–2023 Shock

In: Inflation in the COVID Era and Beyond

Author

Listed:
  • Filippo Pallotti
  • Gonzalo Paz-Pardo
  • Jiri Slacalek
  • Oreste Tristani
  • Giovanni L. Violante

Abstract

We measure the heterogeneous first-order welfare effects of the recent inflation surge across households in the euro area. A simple framework illustrating the numerous transmission channels of surprise inflation to household welfare guides our empirical exercise. By combining micro data and aggregate time series, we conclude that: (i) country-level average welfare costs –expressed as a share of triennial income– were sizable and heterogeneous: around 3% in France and Spain, 7% in Germany, and 9% in Italy; (ii) this inflation episode resembles an age-dependent tax, with the retirees losing up to 14%, and roughly half of the 25–44 year-old winning; (iii) losses were quite uniform across consumption quantiles because rigid rents served as a hedge for the poor; (iv) nominal net positions were the key driver of heterogeneity across-households; (v) the rise in energy prices generated vast variation in individual-level inflation rates, but unconventional fiscal policies helped shield households. The counterpart of this household-sector loss is a significant gain for the government.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Filippo Pallotti & Gonzalo Paz-Pardo & Jiri Slacalek & Oreste Tristani & Giovanni L. Violante, 2024. "Who Bears the Costs of Inflation? Euro Area Households and the 2021–2023 Shock," NBER Chapters, in: Inflation in the COVID Era and Beyond, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:15079
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    Cited by:

    1. David Altig & Alan J. Auerbach & Erin Eidschun & Laurence Kotlikoff & Victor Yifan Ye, 2024. "Inflation's Fiscal Impact on American Households," NBER Chapters, in: NBER Macroeconomics Annual 2024, volume 39, National Bureau of Economic Research, Inc.
    2. Tom Krebs & Isabella Weber, 2024. "Can Price Controls be Optimal? The Economics of the Energy Shock in Germany," Working Papers 3, Forum New Economy.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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