The Relationship Between Inflation and Household Consumption Patterns

Abstract

This study investigates the relationship between inflation and household consumption patterns using a mixed-methods approach that integrates econometric analysis with qualitative thematic assessment. Drawing on data from 45 countries between 2018 and 2021, inflation is measured using consumer price indices, while household consumption is evaluated through expenditure indices, income levels, and savings rates. Panel regression and two-stage least squares estimations reveal that rising inflation significantly reduces real household consumption and savings, with the effects varying across income groups and regions. Households in low- and middle-income countries experienced sharper declines in discretionary spending and increased allocation toward necessities, while higher-income households adjusted by shifting consumption timing or substituting toward durable goods. Regression results also confirmed that inflation erodes household savings buffers and amplifies vulnerability, with institutional quality and monetary policy credibility moderating the magnitude of these impacts. Complementary qualitative evidence from consumer surveys and policy reports highlights coping strategies, such as debt-financed purchases and accelerated spending, underscoring the behavioral dimension of inflationary responses. The integration of these findings demonstrates that inflation not only reduces real purchasing power but also reshapes household consumption baskets, savings behavior, and financial vulnerability. The study concludes that inflation has heterogeneous, context-specific effects, with implications for inequality, welfare, and policy. Policymakers must focus on enhancing monetary policy credibility, designing targeted social protection systems, and ensuring accessible but sustainable credit markets to protect household welfare under inflationary pressures.