INFLATION INEQUALITY IN THE UNITED STATES

Different spending patterns across households and differences in price increases across goods and services lead to unequal levels of inflation faced by different households. In this paper we measure the degree of inequality in inflation across U.S. households for the period 1987–2000. The broad picture that emerges from our results is that over our whole sample period there are substantial differences in the inflation experiences across U.S. households. We find that the cost of living increases were generally higher for the elderly, in large part because of their health care expenditures, and that the cost of living of poor households is most sensitive to the, historically large, fluctuations in gasoline prices. Still, when looking at the whole population, we find that individual households that are confronted with high inflation in one year do not generally face high inflation in the subsequent year as well.