Inflation Inequality: Drivers and Composition in the Czech Republic and Beyond

This chapter considers the distributional effects of the current high level of inflation, focusing primarily on European countries. The first part of the chapter examines recently published studies on the issue that have adopted innovative methodologies, integrated microeconomic surveys with national accounts and employed panel quantile regression with fixed effects to estimate the effects of inflation on income inequality. The findings of these studies revealed that higher inflation rates exacerbate income inequality, especially in regions with lower initial income inequality levels. Furthermore, various studies have investigated the relationship between inflation and well-being via the consideration of inflation inequalities within countries and the disentanglement of the contributions of profits, wages and import prices to overall inflation dynamics. The second part of the chapter employs Czech Household Budget Survey and Consumer Price Index data to create consumer price indices for various population subgroups in the Czech Republic, the household budgets of which have been impacted by one of the highest rates of inflation in Europe. We determined that subgroup-specific inflation rates are very similar to the inflation rate for all the non-elderly population, with the exception of single-parent households, which experienced a higher inflation rate in 2022 than did the other subgroups. However, the difference was reasonably modest. Importantly, we found that inflation issuing from housing, water, electricity, gas and other fuels is significantly higher for low-income and single-parent households than for high-income and two-parent households. The difference is particularly significant for single-parent households, for which inflation due to increases in housing, water, electricity, gas and other fuel costs represents 40.15% of their overall inflation burden compared to 28.44% for two-parent households. This finding suggests that the recent increases in electricity and gas prices may exert particularly harmful effects on single-parent households unless the government provides the support necessary to mitigate the adverse effects of rising prices. While all households are being affected by rising living costs, single-parent and low-income households should be prioritised in terms of support. In addition, we calculated that for low-income and single-parent households, the total loss of purchasing power due to inflation amounts to CZK 15,179 and CZK 20,445, respectively.