Understanding Inflation's Unequal Burden: Evidence from Spanish Households

This paper examines the distributional effects of the recent inflationary episode in Spain, with a focus on how price increases have impacted households across the income distribution. Using microdata from the Spanish Household Budget Survey (EPF) from 2016 to 2023, the study constructs household-specific price indices to capture perceived inflation and analyzes changes in budget shares across key expenditure categories. The analysis combines tools from fiscal incidence literature, such as concentration indices and the Reynolds-Smolensky index, with a regression framework based on Engel curves estimated separately by income quintile. The findings reveal that inflation has had a regressive effect: lower-income households not only experienced higher perceived inflation but also shifted their spending toward essential goods such as food and rent. In contrast, higher-income households showed greater resilience, maintaining discretionary expenditures like vehicle use and accommodation services. These results highlight the unequal burden of inflation and underscore the need for targeted policy measures to protect vulnerable households during periods of price instability.