The Heterogeneous Effects of Inflation in France and in the Eurozone
This article examines the heterogeneous impact of inflation on different categories of households in France and the euro area between mid-2021 and the end of 2023. Differences in consumption patterns between households and inflation dispersion across products generated inflation inequalities. The inflationary episode, driven by rising prices of imported goods, mainly affected households that spend a larger share of their income on energy and food. In France, inflation differentials between income quintiles were low during this period, but differentials by age and area of residence were more pronounced. Gas subsidies and price caps significantly contributed to reducing inflation inequalities.
Not all households are equal when it comes to inflation. From a theoretical point of view, inflation is seen as a regressive tax on consumption (Erosa and Ventura, 2002; Gautier et al., 2020): inflation has a greater impact on low-income households since they devote a larger share of their income to the consumption of essential goods and services (housing, food, etc.); price increases also more affect households who hold more of their wealth in their bank accounts or cash rather than in real estate assets; finally, it has a greater impact on households who have a harder time renegotiating their salaries. The higher inflation, the greater and more persistent the unwanted redistributive effects of inflation can be. In 2022 and 2023, price increases were triggered by the increase in imported prices, particularly energy prices. Inflation…