The Heterogeneous Impact of Inflation on Households’ Balance Sheets

BIS Working Papers No 1152

36 Pages Posted: 20 Dec 2023

See all articles by Clodomiro Ferreira

Clodomiro Ferreira

Banco de España

Galo Nuño

Banco de España; Bank for International Settlements (BIS)

Jose M. Leiva Murillo

BBVA Research

Alvaro Ortiz

BBVA Research; IE Business School

Tomasa Rodrigo

BBVA Research

Sirenia Vazquez

BBVA Research

Multiple version iconThere are 2 versions of this paper

Date Written: December 5, 2023

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.

Keywords: inflation inequality, net nominal positions, nominal wage rigidities

JEL Classification: G51, D31, E31

Suggested Citation

Ferreira, Clodomiro and Nuño, Galo and Leiva Murillo, Jose Miguel and Ortiz, Alvaro and Rodrigo, Tomasa and Vazquez, Sirenia, The Heterogeneous Impact of Inflation on Households’ Balance Sheets (December 5, 2023). BIS Working Papers No 1152, Available at SSRN: https://ssrn.com/abstract=4655163 or http://dx.doi.org/10.2139/ssrn.4655163

Clodomiro Ferreira

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Galo Nuño

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Bank for International Settlements (BIS)

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Jose Miguel Leiva Murillo

BBVA Research ( email )

2200 Post Oak Blvd
Houston, TX 77056
United States

IE Business School ( email )

Spain

Tomasa Rodrigo

BBVA Research ( email )

Sirenia Vazquez

BBVA Research ( email )

2200 Post Oak Blvd
Houston, TX 77056
United States

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