Are we undermeasuring inflation for lower earners?
A new study suggests that inflation is undermeasured for lower-income households due to a phenomenon called 'cheapflation.' This occurs when price increases in low-cost products disproportionately affect low-income consumers, leading to greater inflation rates for them compared to higher-income households. The research indicates that official statistics may underestimate the inflation experienced by these households by 70-90 percent.
- ▪The study documents fluctuations in inflation inequality, particularly affecting low-income households.
- ▪When upstream input costs rise, low-priced products see larger percentage price increases, leading to excess inflation for lower earners.
- ▪Official inflation statistics fail to capture these differences, resulting in significant underreporting of inflation impacts on low-income households.
Opening excerpt (first ~120 words) tap to expand
Are we undermeasuring inflation for lower earners? by Tyler Cowen May 29, 2026 at 2:50 am in Data Source Economics We document a new source of fluctuations in inflation inequality. When the cost of upstream inputs rises, varieties within a product category tend to have similar absolute price increases. However, the same absolute price increase constitutes a larger percentage change for low-price products, resulting in excess inflation at the low end (“cheapflation”). Since low-income households tend to buy lower-priced varieties, the inflation rates they face are disproportionately sensitive to upstream costs.
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Excerpt limited to ~120 words for fair-use compliance. The full article is at Marginal Revolution.
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