The differential impact of inflation on key societal interest groups and public policy implications
Abstract An inflation problem exists when there is a perceived negative imbalance in the input-output position of a particular group. In this article the inflation problem is disaggregated by type of input-output imbalance, by degree of severity of the imbalance, and by vested interest group. The disaggregated model captures the inverse relationship between price changes and the inflation problem for subgroups, and the duality of the impact of price changes on particular subgroups. The empirical specification of the model makes explicit the diverse and often conflicting impacts of inflation on various subgroups. It is argued that macroeconomic policy makers often implement the wrong type of anti-inflation measures at the wrong time. The proposed input-output model provides a rationale and a framework for implementing microeconomic, targeted policies. With targeted policies, we can attempt to remedy particular inflationary problems without adversely affecting prosperous components of the economy.