Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/339493 
Year of Publication: 
2025
Series/Report no.: 
IFS Working Papers No. 25/21
Publisher: 
The Institute for Fiscal Studies (IFS), London
Abstract: 
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.
Subjects: 
inflation
cost-of-living
inequality
heterogeneity
non-homotheticity
JEL: 
D12
D30
E31
I30
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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