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The incidence of inflation: inflation experiences by demographic group: 1981-2004

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Abstract

We use data from the Consumer Expenditure Survey from 1980-2003 combined with item specific Consumer Price Index data to calculate monthly chain-weighted inflation measures for thirteen different demographic groups and for the overall urban population from 1981-2004. We find that the inflation experiences of the different groups are very highly correlated with and similar in magnitude to the inflation experiences of the overall urban population. Over the sample period, cumulative inflation for the groups ranged from 224% to 242% as compared to inflation for the overall population of 230%. The group with the largest deviation from overall inflation consists of households where the head or spouse is 65 or over. These households had cumulative inflation 5% higher than the average. We also find that the variability of inflation is higher for vulnerable populations and lower for advantaged populations. In particular, we calculate that the standard deviation of inflation declines with educational attainment. This is the result of higher expenditure shares among the less educated on necessities with more variable prices, including food and energy. However, this difference in variability is fairly modest. The inflation rate of the least educated is 3.0% more variable than inflation for all urban households. We conclude that inflation is principally an aggregate shock and that the CPI-U does a reasonable job of measuring the inflation experience of the demographic groups that we investigate.

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  • Leslie McGranahan & Anna L. Paulson, 2005. "The incidence of inflation: inflation experiences by demographic group: 1981-2004," Working Paper Series WP-05-20, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-05-20
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    1. Orazio Attanasio & Erich Battistin & Hidehiko Ichimura, 2004. "What Really Happened to Consumption Inequality in the US?," NBER Working Papers 10338, National Bureau of Economic Research, Inc.
    2. Bart Hobijn & David Lagakos, 2005. "Inflation Inequality In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 581-606, December.
    3. Erich Battistin, 2002. "Errors in Survey Reports of Consumption Expenditures," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C4-2, International Conferences on Panel Data.
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    1. Colin J. Hottman & Ryan Monarch, 2023. "Who’s Most Exposed to International Shocks? Estimating Differences in Import Price Sensitivity across U.S. Demographic Groups," Working Papers 23-13, Center for Economic Studies, U.S. Census Bureau.
    2. Dräger, Lena & Lamla, Michael J. & Pfajfar, Damjan, 2016. "Are survey expectations theory-consistent? The role of central bank communication and news," European Economic Review, Elsevier, vol. 85(C), pages 84-111.
    3. Pfajfar, D. & Santoro, E., 2008. "Asymmetries in Inflation Expectation Formation Across Demographic Groups," Cambridge Working Papers in Economics 0824, Faculty of Economics, University of Cambridge.
    4. Byeongdeuk Jang & Young Se Kim, 2017. "Driving Forces of Inflation Expectations," Korean Economic Review, Korean Economic Association, vol. 33, pages 207-237.
    5. Damjan Pfajfar & Emiliano Santoro, 2007. "Heterogeneity, Asymmetries and Learning in InfIation Expectation Formation: An Empirical Assessment," Money Macro and Finance (MMF) Research Group Conference 2006 123, Money Macro and Finance Research Group.

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    Keywords

    Inflation (Finance); Demography;

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