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The unequal impact of the 2021-22 inflation surge on euro area households

Author

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

Abstract

The 2021-22 surprise inflation surge had a major impact on households in the euro area. It reduced the real incomes and net wealth of most households as there was no immediate increase in nominal wages and pensions, nominal house prices and the nominal value of bonds, deposits, cash and debt following the rise in the price level. This influenced households’ present and future consumption and therefore their welfare. Although poorer households suffered most from the reduction in the purchasing power of their income, overall welfare losses were especially large for retirees because of the fall in the real value of their relatively large holdings of nominal assets. Conversely, younger and heavily indebted households benefited from the reduction in the real value of their liabilities. In this sense, this inflation episode mimicked an age-dependent tax. Indeed, not everyone was a net loser: while about 70% of households suffered a loss, the rest enjoyed moderate gains. JEL Classification: D12, D14, D31, E21, E52, E58

Suggested Citation

  • Pallotti, Filippo & Paz-Pardo, Gonzalo & Slacalek, Jiri & Tristani, Oreste & Violante, Giovanni L., 2024. "The unequal impact of the 2021-22 inflation surge on euro area households," Research Bulletin, European Central Bank, vol. 116.
    • Handle: RePEc:ecb:ecbrbu:2024:0116:
    Note: 1111765
    as

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    References listed on IDEAS

    as
    1. Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
    2. Felipe N. Del Canto & John R. Grigsby & Eric Qian & Conor Walsh, 2023. "Are Inflationary Shocks Regressive? A Feasible Set Approach," NBER Working Papers 31124, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Consumption; Fiscal Support; Household Heterogeneity; Housing; Inflation; Labour Income; Net Nominal Positions; Redistribution;
    All these keywords.

    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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