Description

This paper examines the heterogeneous effects of monetary policy and oil price shocks on inflation across the income distribution in Chile. We find that a contractionary monetary policy shock significantly reduces inflation for all income deciles, with a larger decline for high-income households. This differential response is mainly driven by price changes in the Transport category, which accounts for a larger share of expenditures among these households. By contrast, an oil price shock significantly increases cumulative inflation. Although the initial impact is stronger for high-income households, the effect becomes larger for low- and middle-income households as the shock propagates to other sectors, driven by a comparatively stronger price response in the Food category. Moreover, we document substantial dispersion in household-level inflation rates and show that low-income households experienced higher cumulative inflation than their high-income counterparts between 2009 and 2023.