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The incidence of inflation: inflation experiences by demographic group: 1981-2004

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  • Leslie McGranahan
  • Anna Paulson
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    Abstract

    We use data from the Consumer Expenditure Survey from 1980-2003 combined with item specific Consumer Price Index data to calculate monthly chain-weighted inflation measures for thirteen different demographic groups and for the overall urban population from 1981-2004. We find that the inflation experiences of the different groups are very highly correlated with and similar in magnitude to the inflation experiences of the overall urban population. Over the sample period, cumulative inflation for the groups ranged from 224% to 242% as compared to inflation for the overall population of 230%. The group with the largest deviation from overall inflation consists of households where the head or spouse is 65 or over. These households had cumulative inflation 5% higher than the average. We also find that the variability of inflation is higher for vulnerable populations and lower for advantaged populations. In particular, we calculate that the standard deviation of inflation declines with educational attainment. This is the result of higher expenditure shares among the less educated on necessities with more variable prices, including food and energy. However, this difference in variability is fairly modest. The inflation rate of the least educated is 3.0% more variable than inflation for all urban households. We conclude that inflation is principally an aggregate shock and that the CPI-U does a reasonable job of measuring the inflation experience of the demographic groups that we investigate.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-05-20.

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    Date of creation: 2005
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    Handle: RePEc:fip:fedhwp:wp-05-20

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    Related research

    Keywords: Inflation (Finance) ; Demography;

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    1. Bart Hobijn & David Lagakos, 2003. "Inflation inequality in the United States," Staff Reports 173, Federal Reserve Bank of New York.
    2. Orazio Attanasio & Erich Battistin & Hidehiko Ichimura, 2004. "What Really Happened to Consumption Inequality in the US?," NBER Working Papers 10338, National Bureau of Economic Research, Inc.
    3. Erich Battistin, 2002. "Errors in Survey Reports of Consumption Expenditures," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C4-2, International Conferences on Panel Data.
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