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A Regressive Shock? The Distributional Consequences of Middle East Conflict-Driven Inflation for German Households

Author

Listed:
  • Michael Christl
  • Andreas Peichl

  • Tiphaine Wibault

Abstract

The escalation of the conflict in the Middle East in late February 2026 led to a sharp upward revision in inflation forecasts for Germany, which we attribute primarily to the conflict itself. Using microsimulation methods adapted to simulate a commodity price change, we translate this forecast revision into upper bounds on household-specific purchasing-power losses via a compensating variation approach, distinguishing the loss recovered through consumption taxes from the full loss including the pre-tax transfer to producers. Both measures are sizeable and regressive: in 2026, the average household loses 0.25% of income through the tax channel and 1.15% under the full measure, with bottom-decile losses of 0.63% and 2.87% against 0.12% and 0.65% for the top decile. The Gini coefficient rises by up to 0.14 points, and elderly households are disproportionately affected. Our results show that a supply-side shock originating outside Europe can have a sizeable and unequal impact on household living standards.

Suggested Citation

  • Michael Christl & Andreas Peichl & Tiphaine Wibault, 2026. "A Regressive Shock? The Distributional Consequences of Middle East Conflict-Driven Inflation for German Households," CESifo Working Paper Series 12853, CESifo.
    • Handle: RePEc:ces:ceswps:_12853
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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