Inflation’s wellbeing impact

Inflation is coming down across developed economies, although not as much as governments and central banks would like. The latest figures tracking UK inflation show prices rose by 7.3% in the year to June 2023, down from 7.9% in May, but still well above the government’s official target of 2%. It’s slowing even more in other major economies including the US and Europe but, again, remains higher than desired.

Price hikes hurt everyone, but research into inflation inequality shows the effects are more pronounced for some people.

Imagine the following scenario. You commute to work by car and you realise that your petrol bill is 10% higher than last year. Your workplace hasn’t changed location, your car hasn’t changed, your consumption hasn’t changed, but prices have. Annoying, isn’t it?

When you share your frustration with your sister, she might tell you that things aren’t so bad, but she commutes by train. Your dad may say that he hasn’t noticed a change, but he’s retired and rarely drives. A friend could tell you that her situation is even worse, since her commuting distance is double yours.

Who’s right about price inflation? Everyone. The point is that inflation is not the same for everyone.

Over the same period, and in the same country, different people experience different inflation rates. This is an acknowledged economic fact known as inflation inequality.

In theory, people who are the most exposed to inflation should be the ones who endure a larger wellbeing loss as prices rise. In a recent study, I showed this, using data from France’s official consumer confidence survey.
 

Source Financial Accountant click here to read more.