The Distributional Impact of Inflation in South Asia: An Empirical Approach

This paper provides an empirical estimation of the distributional impact of inflation on households in South Asia. Two main channels are explored—the consumption basket channel and the income channel—for households in different income deciles in selected countries in South Asia. Using recent household expenditure surveys, the paper constructs detailed consumption expenditure shares and the effective “cost-of-living” inflation for households of different income levels. The analysis finds that due to a substantially larger share of food expenditure, households in lower income deciles experience higher effective inflation when food prices are high, despite a diversification in consumption expenditure over time. The analysis also suggests heterogeneous effects of inflation through the household income channel.