The distributional impact of inflation in Italy

The entrance of Italy in the Euro area in 2001 has risen a great debate about the perception of inflation on households’ well-being. However, most of the debate has been macroeconomic in nature, involving how to measure the “correct” common consumer price index. Much less analysis has been carried out on the microeconomic side, i.e. on the consequences of inflation on “every” household given its own consumption path. This paper addresses this issue by calculating the distributional impact of inflation for Italian households from 1997 to 2007 using data on households’ consumer expenditures. Both a descriptive and welfare analysis of price changes are performed, showing that inflation has followed an uncertain path of distributional impacts over time, yet with a large concentration of welfare losses in the period surrounding the introduction of the euro currency.