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Inflation is not equal for all: The heterogeneous effects of energy shocks

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  • Corsello, Francesco
  • Riggi, Marianna

Abstract

This paper investigates the relationship between energy shocks, monetary policy responses, and inflation inequality, defined as the gap between consumer price inflation faced by households at the bottom and at the top of the expenditure distribution, arising from differences in consumption baskets. We use a VAR-based framework to quantify the impact of energy shocks on inflation inequality and to document their contribution to fluctuations in inflation differentials over time. To interpret the empirical evidence, we develop a two-agent general equilibrium model that sheds light on the underlying mechanisms. We show that the impact of energy shocks on inflation inequality intensifies when monetary policy reacts more forcefully to inflation. By estimating the model for the Italian economy, we assess the joint roles of energy shocks and monetary policy in driving the record level of inflation inequality observed in 2022, thereby providing empirical support for the mechanisms highlighted in the theoretical model.

Suggested Citation

  • Corsello, Francesco & Riggi, Marianna, 2026. "Inflation is not equal for all: The heterogeneous effects of energy shocks," European Economic Review, Elsevier, vol. 187(C).
    • Handle: RePEc:eee:eecrev:v:187:y:2026:i:c:s0014292126000425
    DOI: 10.1016/j.euroecorev.2026.105298
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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