Rethinking Inflation Heterogeneity: Evidence From National Accounts

Do low-income households systematically face higher inflation than high-income households? Contrary to prevailing narratives based on the consumer price index, our analysis using personal consumption expenditure price indices demonstrates that inflation inequality has been moderating. Using income-stratified PCE price indices consistent with national accounts, we find substantially smaller inflation gaps than CPI-based studies suggest. This convergence is driven by significant inflation in financial services, primarily impacting higher-income households. Recalculating real disposable personal income growth using corresponding PCE price indices, yields significantly flatter income growth gradients than previously found.