Jana Valachyová - The impact of unexpected inflationary shock in 2022 and 2023 on the welfare of families: The case of Slovakia

• Presenting author: Jana Valachyová (Council for Budget Responsibility)

• Authors: Jana Valachyová, Matúš Senaj, Zuzana Siebertová, Alexandra Putzová, Norbert Švarda

• Session: B03C - Inflation [1] - Tuesday 14:00-15:30 - Senate Hall

• Slides: PDF

In this paper we analyze the impact of an unexpected and steep increase in price level on the purchasing power of Slovak families in 2022 and 2023. Up to our knowledge this is the first and the only paper that looks at distributional impacts of inflationary shock in Slovakia. We combine a microsimulation model SIMTASK with the data on expenditures from Household Budget Survey to quantify the net effect of inflationary shock after the cushioning effects of adopted government measures and economic adjustments in the form of inflation-induced wage growth and an extra valorization of social benefits. We show that in 2022, the government measures were well targeted and succeeded to offset a significant part of a purchasing power drop for low-income families. For high-income families, economic adjustments were the component that helped to offset a significant part of their purchasing power drop. However, the overall net effect on welfare was negative in every income decile. The story is different in 2023. It turns out that despite the high inflation, the macroeconomic adjustment hand in hand with adopted government measures, including a generous price cap on energy prices and pro-family policy, more than compensate a drop in purchasing power. Only families with children benefit from newly adopted measures, and the more children are in the family, the higher is the benefit.