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Younger Households' Inflation Is More Responsive to Monetary Policy

Author

Listed:
  • Aeimit Lakdawala

    (Wake Forest University)

  • Timothy Moreland

    (University of North Carolina Greensboro)

Abstract

When the Federal Reserve raises interest rates, prices faced by younger households fall more than prices faced by older households. Using age-specific distributional consumer price indices together with high-frequency monetary policy shocks, we document a monotone age gradient in inflation responses, from households under 25 through households 75 and older. A simple decomposition combining BLS major-group CPI responses with age-specific CEX expenditure shares accounts for most of the gap between the youngest and oldest households. Transportation and medical care drive the result: younger households spend disproportionately on transportation (including motor fuel, vehicles, and auto insurance), whose prices respond strongly to monetary policy, while older households spend disproportionately on medical care, whose prices respond less.

Suggested Citation

  • Aeimit Lakdawala & Timothy Moreland, 2026. "Younger Households' Inflation Is More Responsive to Monetary Policy," Working Papers 133, Wake Forest University, Economics Department.
    • Handle: RePEc:ris:wfuewp:022481
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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