Template-Type: ReDIF-Paper 1.0
Author-Name: Clodomiro Ferreira
Author-X-Name-First: Clodomiro
Author-X-Name-Last: Ferreira
Author-Name: José Miguel Leiva
Author-X-Name-First: José Miguel
Author-X-Name-Last: Leiva
Author-Name: Galo Nuño Barrau
Author-X-Name-First: Galo
Author-X-Name-Last: Nuño Barrau
Author-Name: Alvaro Ortiz
Author-X-Name-First: Alvaro
Author-X-Name-Last: Ortiz
Author-Name: Tomasa Rodrigo
Author-X-Name-First: Tomasa
Author-X-Name-Last: Rodrigo
Author-Name: Sirenia Vazquez
Author-X-Name-First: Sirenia
Author-X-Name-Last: Vazquez
Title: The heterogeneous impact of inflation on households' balance sheets
Abstract: We identify and study analytically three key channels that shape how inflation affects wealth inequality: (i) the traditional wealth (Fisher) channel through which inflation redistributes from lenders to borrowers; (ii) an income channel through which inflation reduces the real value of sticky wages and benefits; and (iii) a relative consumption channel through which heterogeneous increases in the price of different goods affect people differently depending on their consumption baskets. We then quantify these channels during the 2021 inflation surge in Spain using detailed and high-frequency client-level data from one of the main commercial banks. The unexpected nature and temporary perception of the inflation shock in this particular period closely maps on to the assumptions behind our theoretical decomposition. Results show that the wealth and income channels are one order of magnitude larger than the consumption channel. Middle-aged individuals were largely unaffected by inflation, while older ones suffered the most. We find similar results when using representative surveys on households' wealth, income, and consumption.
Creation-Date: 2023-12
File-URL: https://www.bis.org/publ/work1152.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1152.htm
File-Format: text/html
Number: 1152
Keywords: inflation inequality, net nominal positions, nominal wage rigidities
Classification-JEL: G51, D31, E31
Handle: RePEc:bis:biswps:1152