What is the impact of inflation of citizen well-being?
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The Impact of Inflation on Citizen Well-Being
Inflation Inequalities and Well-Being
Inflation can have a significant impact on citizen well-being, particularly when considering inflation inequalities within a country. Research indicates that variations in perceived inflation can predict differences in well-being among consumers, even when accounting for socio-demographic factors and personality traits. This suggests that the well-being cost of inflation is higher than what aggregate figures might show. Additionally, changes in the price of specific goods disproportionately affect the well-being of those who consume them, further highlighting the nuanced impact of inflation on different consumer groups.
Food Price Inflation and Urban Well-Being
Food price inflation has been shown to significantly reduce the subjective well-being of urban households, as evidenced by a study in Ethiopia. Despite rapid economic growth, the negative impact of food price shocks on well-being was substantial, raising questions about the pro-poor nature of such growth. Controlling food price inflation and ensuring that economic benefits reach average urban citizens could significantly enhance welfare.
Inflation and Unemployment in Latin America
In Latin America, both inflation and unemployment have been found to reduce well-being. The relative cost of inflation in terms of unemployment is notably higher in this region compared to OECD countries. This trade-off, often referred to as the "misery index," varies across different demographic groups, with younger and left-leaning citizens being more concerned about unemployment than inflation.
Macroeconomic Stability and Life Satisfaction in Europe
European citizens' subjective well-being is inversely related to both inflation and unemployment. Stability, whether measured by inflation rates or long-term interest rates, is as important to citizens as growth and employment. This underscores the importance of macroeconomic stability in maintaining life satisfaction.
Inflation's Disproportionate Impact on the Poor
Inflation tends to disproportionately affect the poor, who are more likely to cite it as a top national concern. High inflation is negatively correlated with improvements in well-being for the poor, including their share of national income, poverty rates, and real minimum wage levels. This suggests that inflation exacerbates economic inequalities and increases poverty.
The 2008-2009 Crisis and Subjective Well-Being
The macroeconomic crisis of 2008-2009 had a profound impact on subjective well-being in OECD countries. The drop in GDP, coupled with rising unemployment, significantly affected life satisfaction. Although inflation rates decreased in some countries, the effect was too weak to offset the negative impacts of GDP and unemployment fluctuations. This highlights the critical role of economic stability in maintaining well-being during crises.
Conclusion
Inflation has a multifaceted impact on citizen well-being, affecting different demographic groups and economic strata in various ways. While aggregate figures provide a broad overview, a deeper analysis reveals significant disparities in how inflation influences well-being. Addressing these disparities through targeted economic policies could enhance overall welfare and reduce the negative impacts of inflation on vulnerable populations.
Sources and full results
Most relevant research papers on this topic
The Well‐Being Cost of Inflation Inequalities
The Impact of Food Price Inflation on Subjective Well-being: Evidence From Urban Ethiopia
Monetary policy and happiness: Preferences over inflation and unemployment in Latin America
Macroeconomics and Life Satisfaction: Revisiting the “Misery Index”
Inflation and the Poor
How Has the Crisis of 2008–09 Affected Subjective Well‐Being? Evidence from 25 OECD Countries
How Has the Crisis of 2008-2009 Affected Subjective Well-Being? Evidence from 25 OECD Countries
A Rising Endemic within a Pandemic: Impact of Inflation on Mental Health.
Inflation and Economic Growth
Impact of COVID-19 on Inflation Measurement
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