ECB Economic Bulletin: Poorer Households’ Balance Sheets Less Affected by Inflation

30 July 2024

By Isabel Teles – FRANKFURT (Econostream) – The recent surge in inflation and subsequent monetary policy tightening had a stronger impact on the balance sheets of the euro area’s wealthier household than on those of the poorer ones, according to the Economic Bulletin pre-release published Tuesday by the European Central Bank.

‘Real net wealth has declined across the wealth distribution since mid-2021, but higher inflation has tempered losses for poorer households by eroding their liabilities more than their deposits, while also amplifying losses for wealthier households’, the authors of the bulletin said.

According to the bulletin, both wealthier and poorer households had likely experienced nominal net wealth losses due to monetary policy tightening, but with different intensity.

‘Poorer households, as a group, hold lower deposits than debt’, the bulletin said. ‘This implies that inflation will erode a higher share of their liabilities than their assets exposed to inflation (i.e. deposits), while the opposite occurs for wealthier households.’

For the less wealthy households, the housing channel had a stronger impact, while for the wealthiest households, the financial channels played a bigger role, the bulletin said.

The authors of the bulletin used a new dataset called the Distributional Wealth Accounts (DWA) to assess the wealth distribution dynamics across the euro area.