Fiscal Support during a Period of High Inflation: A Distributional Perspective

High inflation over 2022 and 2023 had a disproportionately adverse impact on lower-income households. However, our simulation suggests cost-of-living measures implemented by Government from 2022 to 2024 helped, on average, to fully offset the potential welfare loss (as measured by ability to maintain consumption at pre-inflation levels). On a cumulative basis, the Government’s income (as compared to price) measures were the most important driver of income growth for half the distribution. They were particularly important for households with the lowest 10 per cent of incomes, increasing their nominal disposable income by 25 per cent between 2021 and 2024. This compares to 2 per cent for the top 10 per cent of incomes. In contrast, the effect of universal VAT and excise cuts (price measures) was smaller and less progressive, with households across the income distribution benefiting to a similar extent. The simulation results suggest greater targeting of measures could have delivered fiscal savings, while still achieving the aim of shielding the most vulnerable.