The Heterogeneous Impact of Inflation on Households Balance Sheets.

36 Pages Posted: 5 Feb 2024

See all articles by Clodomiro Ferreira

Clodomiro Ferreira

Banco de España

Jose M. Leiva Murillo

BBVA Research

Galo Nuño

Banco de España; Bank for International Settlements (BIS)

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: January 26, 2024

Abstract

We identify and study analytically three key channels that shape how inflation affects wealth inequality: (i) the traditional wealth (or 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 prices 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, high-frequency customer-level data from one of the main commercial banks. The unexpected nature of the inflation shock and its perception as temporary in this period in particular closely fit the assumptions behind our theoretical decomposition. Results show that the wealth and income channels are an order of magnitude larger than the consumption channel. Middle-aged individuals were, in net terms, largely unaffected by inflation, while the elderly suffered the most. We find similar results when using representative surveys on households’ wealth, income, and consumption.

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

JEL Classification: G5,D31,E31

Suggested Citation

Ferreira, Clodomiro and Leiva Murillo, Jose Miguel and Nuño, Galo and Ortiz, Alvaro and Rodrigo, Tomasa and Vazquez, Sirenia, The Heterogeneous Impact of Inflation on Households Balance Sheets. (January 26, 2024). Banco de Espana Working Paper No. 2403, Available at SSRN: https://ssrn.com/abstract=4710154 or http://dx.doi.org/10.2139/ssrn.4710154

Clodomiro Ferreira

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Jose Miguel Leiva Murillo

BBVA Research ( email )

2200 Post Oak Blvd
Houston, TX 77056
United States

Galo Nuño

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Bank for International Settlements (BIS)

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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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