Inequality in Italy

Inflation is usually assumed to affect all households with the same intensity. Since relative prices are subject to continuous changes, each household, depending on its specific pattern of consumption, is however characterised by a specific inflation rate. With the help of a rich set of microdata, this paper studies the distribution of inflation rates across Italian households during the period 1986-2004. The main findings are that rich households faced on average a slightly higher inflation rate than poor households, and that some demographic characteristics have been systematically associated with higher price increases. Also in 2002, the year of the changeover, inflation has been slightly higher for the rich. Using individual prices indexes, it is finally possible to show that, in the last few years, real living standards for many families have worsened.