FEDS paper reveals wide household inflation differences in groceries
A new Federal Reserve paper documents substantial inflation heterogeneity among U.S. households during the 2021-2022 inflation episode. The study found household-level inflation rates varied significantly, leading to notable welfare losses.
Price dispersion impacts households
U.S. scanner data from 50,000 outlets showed price changes for similar grocery goods grew more dispersed in 2022, then fell in 2023.
This created substantial inflation heterogeneity among households, who experienced significantly varied inflation rates.
The cost of varied inflation
Households offset little of their budget shocks through substitution.
A model rationalizes this, implying household inflation rates bound welfare losses.
When inflation peaked in 2022, households at the 10th and 90th percentiles, with average grocery expenditures, faced welfare losses of $573 and $1,145.