The well-being cost of inflation inequalities

Prati, Alberto (2023) The well-being cost of inflation inequalities. Review of Income and Wealth. ISSN 0034-6586

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Abstract

In terms of well-being, how costly is inflation? To answer this question, empirical evaluations have typically studied average inflation rates at the national level, thus disregarding the role of inflation inequalities within a country. In this article, we relax the assumptions that heterogeneous consumers face homogeneous inflation rates, and study the correlation between price changes and self-reported satisfaction with living standards. We use newly available data from France and adopt two approaches. First, we focus on individually perceived inflation and use the internationally harmonized Opinion Price Index as a proxy for experienced inflation. Variations in perceived inflation help predict well-being differences among consumers, even when controlling for relevant sociodemographic factors, personality traits, and common method variance. We estimate their marginal impact to be higher than equivalent variations in nominal income. Second, we compare groups of consumers over time and find that changes in the price of a good disproportionately affect the relative well-being of those who consume it. The study shows that the well-being cost of the inflation crisis would be underestimated if looking at aggregate figures only.

Item Type:	Article
Additional Information:	© 2023 The Author.
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation I - Health, Education, and Welfare > I3 - Welfare and Poverty > I31 - General Welfare; Basic Needs; Living Standards; Quality of Life; Happiness
Date Deposited:	17 Jan 2023 16:30
Last Modified:	22 Apr 2024 17:30
URI:	http://eprints.lse.ac.uk/id/eprint/117919

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