Inflation Heterogeneity and Differential Effects of Monetary and Oil Price Shocks

This paper examines the heterogeneous effects of monetary policy and oil price shocks on inflation across the income distribution in Chile. We find that a contractionary monetary policy shock significantly reduces inflation for all income deciles, with a larger decline for high-income households. This differential response is mainly driven by price changes in the Transport category, which accounts for a larger share of expenditures among these households. By contrast, an oil price shock significantly increases cumulative inflation. Although the initial impact is stronger for high-income households, the effect becomes larger for low- and middle-income households as the shock propagates to other sectors, driven by a comparatively stronger price response in the Food category. Moreover, we document substantial dispersion in household-level inflation rates and show that low-income households experienced higher cumulative inflation than their high-income counterparts between 2009 and 2023.