Heterogeneous Effect of Cost‐Of‐Living Crisis: Evidence From South Korea

The global economy faced a severe cost‐of‐living crisis due to the War in Ukraine and COVID‐19‐related supply chain damages. However, the official Consumer Price Index, which represents the average changes, has limitations in drawing a fuller picture of actual heterogeneity for policymakers. In this regard, this study calculated a household‐specific index and conducted unconditional quantile regression to analyse the heterogeneous effects of the cost‐of‐living crisis on Korean households. Unlike previous inflation, the results indicate that upper‐middle‐income households experienced higher pressures than low‐income households. Specifically, vehicle's fuel and meal expenses had the greatest contributions to the recent price increase. According to unconditional quantile regression with socio‐demographic variables, female, unemployed, highly educated and older householders experienced lower pressure. Meanwhile, home‐owning households also calibrated consumption patterns due to monetary policy normalisation. Among them, households that faced higher household‐specific price changes are more likely to adjust their consumption behaviours actively. In this regard, government measures should be more targeted considering consumption pattern changes during inflation, and providing information for smart consumers could be an alternative measure.