Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319883 
Year of Publication: 
2025
Series/Report no.: 
BERG Working Paper Series No. 205
Publisher: 
Bamberg University, Bamberg Economic Research Group (BERG), Bamberg
Abstract: 
We argue that most of the existing literature on inflation inequality misses an essential source of disparity by focusing on differences in expenditures while ignoring the effect of a price change on the purchasing power of households' incomes. As a remedy, we propose weighting price changes by income rather than by expenditure, as is commonly done. We theoretically derive why, under incomeweighting, lower-income households are disproportionately affected by any change in prices. This proposition is validated empirically for 21 EU countries using current sector-level input-output data. Our approach allows to reconcile the conflicting evidence in the literature on inflation inequality regarding structurally higher inflation perceptions and expectations of lower-income households. Ultimately, these findings call for a broad reassessment of current approaches to measuring inflation and income inequality.
Subjects: 
Inflation
Inequality
Input-output Analysis
Europe
JEL: 
E31
D31
C15
C67
D90
Document Type: 
Working Paper

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