Investment Institute
Macroeconomic Research

The unequal impact of inflation: How governments are responding

  • 27 October 2022 (5 min read)

Key points

  • Inflation has reached multi-decade highs in most economies, driven by rising food and energy prices
  • Different economies face different inflation rates – as do differing income groups and individuals
  • Low-income households typically spend proportionally more on energy and food; they are disproportionatley affected by inflation and less likely to have a savings cushion
  • Governments have been quick to respond. Looking at the four largest Eurozone economies and the UK, measures began a year ago but have increased since February. They have accelerated further recently, and we expect more to be announced over the coming months
  • The latest measures have drifted from the least economically distortive approach. If this drift continues, it risks conflicting with other longer-term goals of price and fiscal stability and emissions reductions   
  • The latest measures have not recognized the distributional impact of the energy shock. The longer-term distributional impact will be a complex mix of receding inflation, rising interest rates, and recession.   
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