Spain | The heterogeneous impact of inflation on households’ balance sheets

Summary

This study examines how inflation in 2021 affected wealth inequality in Spain through three channels: the traditional wealth channel, the income channel, and the relative consumption channel. The wealth and income channels had significantly larger effects than the consumption channel.

Key points

• Key points:
• Due to varying spending patterns on goods like food and energy, which witnessed the largest price increases, the relative consumption channel had a negative effect on people under the age of 55 and a beneficial effect especially on people over 65.
• The combination of inflation's effects on real debt burden, less spending capacity, and unequal price increases across sectors led to a notable loss in wealth for older people in the lowest income quartile.
• Since wages and benefits are sticky at frequencies higher than annual, all agents are impacted by the erosion of real income brought on by unexpected inflation. As income rises, this channel inevitably rises as well, peaking for households in the highest quartile between the ages of 56 and 65, which is before retirement age.

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