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Inflation inequality in the United States

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  • Bart Hobijn
  • David Lagakos

Abstract

Inflation is often assumed to affect all people in the same way. In practice, differences in spending patterns across households and differences in price increases across goods and services lead to unequal levels of inflation for different households. In this paper, we measure the degree of inequality in inflation across U.S. households for the period 1987-2001. ; Our results suggest that the inflation experiences of U.S. households vary significantly. Most of the differences can be traced to changes in the relative prices of education, health care, and gasoline. We find that cost of living increases are generally higher for the elderly, in large part because of their health care expenditures, and that the cost of living for poor households is most sensitive to (the historically large) fluctuations in gasoline prices. To our surprise, we also find that those households that experience high inflation in one year do not generally face high inflation in the next year. That is, we do not find much household-specific persistence in inflation disparities.

Suggested Citation

  • Bart Hobijn & David Lagakos, 2003. "Inflation inequality in the United States," Staff Reports 173, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:173
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    References listed on IDEAS

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    1. S. J. Prais, 1959. "Whose Cost of Living?," Review of Economic Studies, Oxford University Press, vol. 26(2), pages 126-134.
    2. Robert T. Michael, 1975. "Variation Across Household in the Rate of Inflation," NBER Working Papers 0074, National Bureau of Economic Research, Inc.
    3. Quah, Danny, 1993. "Empirical cross-section dynamics in economic growth," European Economic Review, Elsevier, vol. 37(2-3), pages 426-434, April.
    4. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
    5. Hagemann, Robert P, 1982. "The Variability of Inflation Rates across Household Types," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 494-510, November.
    6. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
    7. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    8. Berndt Ernst R. & Cockburn Iain M. & Cocks Douglas L. & Epstein Arnold M. & Griliches Zvi, 1998. "Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs," Forum for Health Economics & Policy, De Gruyter, vol. 1(1), pages 1-45, January.
    9. Pollak, Robert A, 1980. "Group Cost-of-Living Indexes," American Economic Review, American Economic Association, vol. 70(2), pages 273-278, May.
    10. Bart Hobijn & David Lagakos, 2003. "Social security and the consumer price index for the elderly," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(May).
    11. Quah, Danny T, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," Journal of Economic Growth, Springer, vol. 2(1), pages 27-59, March.
    12. Michael, Robert T, 1979. "Variation across Households in the Rate of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(1), pages 32-46, February.
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    Keywords

    Inflation (Finance) ; Households ; Cost and standard of living;

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