European inflation was more painful for the elderly

That is the topic of my latest Bloomberg column, here is one bit:

As recent research indicates, the recent inflation has been very costly. The 2021-2022 inflation cost more than 3% of national income in France, Germany and Spain, and about 8% of national income in Italy, higher costs than what a typical recession would bring.

It is striking how much those costs fall on the elderly, which is one reason that lowering inflation rates has been such a priority. The elderly usually have the most accumulated savings, and less time to make up for inflationary losses by subsequent compounding. Older people are also more likely to own homes, so face higher home heating bills when energy prices rise. Overall, in the last several years, a low-income retired household in Italy might have taken income cuts of up to 20%, while a middle-aged household in the euro area might have seen a typical income cut of 5%.

…Not everyone lost from the inflation. Young households in Spain, for instance, gained more than 5% in income. The simplest way a household might gain from inflation is that its debt liabilities decline in real, inflation-adjusted value. On average, the young are more likely to be in debt than the elderly, and own fewer assets. Inflation also tends to lower the value of tenured jobs, such as in academia, and younger people are less likely to hold such posts. The young also tend to have more time in their lives to adjust to negative economic shocks, by for instance geographic or career migration.

Overall, an estimated 30% of the households in the euro area gained from the inflationary shock. Almost half of 25- to 44-year-olds benefited.

On net, the inflation remains a clear negative.  But how many other eurozone policies manage to favor the young?

Here is the underlying research by Filippo Pallotti, Gonzalo Paz-Pardo, Jiri Slacalek, Oreste Tristani, and Giovanni L. Violante.