The Heterogeneous Impact of Inflation Across the Joint Distribution of Household Income and Wealth

Abstract

This paper assesses the impact of the 2022 inflationary shock on Italian households’ wealth along the joint distribution of income and net wealth. The analysis was carried out by dividing households into four groups based on their median income and net wealth, using a methodology similar to the Distributional Wealth Accounts developed at European level. The erosion of the real value of net financial wealth due to inflation was heterogeneous across households. While capital losses were small for the least wealthy households, for the wealthiest group they exceeded one tenth of annual disposable income. Conversely, the reduction in the real value of financial liabilities allowed the group of households with high income and low net wealth to realize a capital gain of nearly one tenth of their income.

Keywords: distributional wealth accounts, inflation, joint income and wealth distribution

JEL Classification: D14, D31, D51, E31