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Does inflation matter? The influence of perceived price changes on well-being

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  • Łukasz Below

Abstract

I confirm the foregoing state of the art for inflation and well-being correlation while filling the gap in the literature and estimating the effects of individuals' inflation perception on well-being. I also discover the significant heterogeneity in attitudes toward inflation, inflation perception, and unemployment among European countries. Inflation measured by official statistics, as well as inflation perceived by consumers, has a significant negative influence on people's well-being. The relation was confirmed by regressing reported life satisfaction on a wide set of individual characteristics, as well as macroeconomic variables. While the inflation perception influence on well-being in Eastern Europe is higher than the influence of HICP, for Western Europe, it is the opposite. Both country groups also differ in terms of the marginal rate of substitution between inflation and unemployment – the effects of higher unemployment are more severe in comparison to the influence of inflation in Western Europe.

Suggested Citation

  • Łukasz Below, 2023. "Does inflation matter? The influence of perceived price changes on well-being," KAE Working Papers 2023-086, Warsaw School of Economics, Collegium of Economic Analysis.
    • Handle: RePEc:sgh:kaewps:2023086
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    File URL: http://hdl.handle.net/20.500.12182/1145
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    More about this item

    Keywords

    inflation; happiness; unemployment; well-being;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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