Inflation & inequality
Bruegel, the European economic “think tank” recently published an article on the rise of inequality due to higher inflation. The main conclusion is that the surge in energy prices is severely aggravating the disproportional impact of inflation on the lowest income households. This is explained by the fact that lower-income workers spend a higher percentage of their total income on energy and also because the upper echelons usually have their savings invested in stocks or inflation-linked bonds which, to some extent, shield them from inflation crisis.
- Lower-income workers spend a higher percentage of their total income on energy, despite having similar consumption rates of energy.
- They are more likely to hold their savings in cash or in very low interest rates bank accounts, whereas the upper echelons usually have their savings invested in stocks or inflation-linked bonds, which shield them from inflation crisis.
- The bottom quartile of households in Belgium experienced a 6.9% inflation rate, in December of 2021, whereas the top quartile of Belgian earners experienced a 5,49% of inflation. A similar phenomenon was observed in Italy and France.