Measuring cost of living inequality during an inflation surge

Résumé fourni par la source

We provide new evidence that inflation inequality surged during the 2021-2023 cost-of living crisis, driven by systematically higher price growth for lower-quality goods disproportionately consumed by poorer households. While substitution in response to relative price changes helped mitigate cost-of-living increases, it did not reverse historically high cost-of-living inequality. Declining living standards drove many households to trade down to lower-quality goods, further exposing them to the strongest price increases. Our findings have important implications for cost-of-living measurement and policymaking in an inflationary environment and underscore rising political discontent, as lower-income households face the steepest rise in their living costs.

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