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Nowcasting consumer price inflation using high-frequency scanner data: evidence from Germany

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Key Points: 

    The impact of the recent rise in inflation on low-income households

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    Friday, November 11, 2022
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    The effects of the recent increase in euro area HICP inflation significantly differ for low and high-income households.

    Key Points: 
    • The effects of the recent increase in euro area HICP inflation significantly differ for low and high-income households.
    • This box explores how recent high inflation levels are affecting low-income and high-income households differently in two main areas: their effective inflation rate due to different spending patterns, and their ability to buffer cost of living increases through savings or borrowing.
    • Consumption baskets vary across income groups, with low-income households spending proportionally more on essentials.
    • The income-specific consumption baskets reported in the Eurostat Household Budget Survey (HBS) allow effective inflation rates to be calculated by income quintile.
    • Decomposing the inflation gap, electricity, gas and other fuels and, increasingly, food prices are the main drivers of the higher inflation faced by lower-income households.
    • Inflation difference between the lowest and highest income quintile households in the euro area
      (percentages)

      Sources: Eurostat Household Budget Survey, ISTAT and ECB calculations.

    • Notes: Chart B shows the difference between the effective inflation rates for low-income households (first quintile) and high-income households (fifth quintile).
    • They tend to consume a larger share of their income, save less and face liquidity constraints more often than high-income households.
    • The higher incidence of liquidity constraints experienced by poorer households is reflected in the rise in households expecting to make late payments on their utility bills.
    • Low-income households perceived the recent government measures aimed at easing the impact of higher energy prices as less adequate than high-income households did.
    • This may suggest that there is scope for more effectively targeting government measures towards low-income households.

    Tax thy neighbour: local corporate taxes and consumer prices across German regions

    Retrieved on: 
    Friday, November 11, 2022
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    The G20 tax accord addresses the above concerns by implementing a 15% lower bound on corporate tax rates across OECD Member countries, which will lead to tax rises in some countries.

    Key Points: 
    • The G20 tax accord addresses the above concerns by implementing a 15% lower bound on corporate tax rates across OECD Member countries, which will lead to tax rises in some countries.
    • [2] However, besides affecting shareholders and workers, corporate taxes may have additional distributive implications by affecting consumer prices, a rarely analysed issue (Baker et al., 2020).
    • Firms may use their market power to shield their after-tax profit margins from increases in corporate taxes.
    • These models predict that firms set prices such that they take into account corporate taxes; in particular, that firms raise prices in response to corporate tax hikes, including on products they export across regions.
    • The ultimate effects on consumer prices crucially depend on how much of a given change in producer prices local retailers would pass on in each region.
    • (2022), we provide empirical estimates of the pass-through of local corporate taxes to consumer prices across regions in Germany.
    • The German institutional setting helps the empirical identification of the response of retail prices to changes in corporate taxes of producers.
    • Geographical variation in local corporate tax rates

      Notes: Both graphs show local tax scaling factors across municipalities.

    • Increasing the local corporate tax by one percentage point raises retail prices of locally produced products by 0.4% relative to those originating in other municipalities.
    • Because we relate local tax changes to price changes outside the production municipality, the estimated effect is not contaminated by local shocks that may drive prices and tax rates.
    • The significant price effects documented here show that firms, by charging higher prices to consumers all over Germany, export the effects of local corporate taxes to other regions.
    • Understanding how consumer prices respond to corporate tax changes may increase our general understanding of what determines product-level prices and inflation.