Inflation and inequality
In-Depth Analysis
25-05-2023
Inflation is often confused with changes in relative prices. The recent sharp increase in energy prices, which has also pushed up food prices, has hit poorer households especially hard, thus creating the impression that inflation increases inequality. However, it is the large changes in relative prices and not the average inflation rate (of now 7%) that is the real problem. We also show that rents – which are more important for low-income households – provide a significant offset for higher energy prices on average for the euro area, as they have lagged inflation, albeit with large differences across countries.
In-Depth Analysis
External author
Daniel GROS, Farzaneh SHAMSFAKHR