In the aftermath of the global pandemic and the ongoing conflict in Ukraine, inflation has surged across nations, placing immense pressure on household budgets. Historically, such economic shocks tend to impact low-income families the most severely, given their limited financial resources and higher proportion of spending on essentials. However, recent findings in South Korea suggest a strikingly different narrative. Contrary to traditional expectations, it is the middle class—particularly upper-middle-income households—that has felt the heaviest burden from rising prices, according to a recent study by Dr Taiwon Ha of Pusan National University. His research, published online on June 4, 2025, in the Asian-Pacific Economic Literature, challenges longstanding assumptions about the distributional effects of inflation.
Dr Ha’s study reveals that while the Consumer Price Index (CPI) remains the standard tool for gauging inflation, it fails to capture the diverse ways in which different households experience cost increases. “The CPI is designed for broad analysis by policymakers and researchers,” Dr Ha explains, “but it lacks the granularity needed to reflect real-life impacts.” To address this limitation, he developed a household-specific price index, allowing for a more nuanced examination of how inflation affects different income levels. The study shows that items such as fuel and restaurant meals—products and services more frequently consumed by employed, commuting families—were the primary contributors to inflation during the studied period.
This trend is not unique to South Korea. Similar patterns have emerged in the United States and parts of Europe, where middle-income households have found themselves disproportionately affected by inflationary pressures in sectors such as transportation and services. While lower-income households are often more vulnerable due to their financial fragility, in this case, they saw relatively minor increases in their core expenditures, which are more likely to be subsidised or price-controlled. Meanwhile, middle-class consumers, who consume more fuel and discretionary services, bear the brunt of escalating prices. Yet, these nuances are mainly absent in the CPI, which presents an average picture that obscures such divergences.
To better understand these dynamics, Dr Ha decomposed the inflation data into specific categories—such as fuel, food, housing, and transport—and analysed their effects across different household types. His findings highlight the importance of differentiated policy responses. For instance, a tax cut on petrol may disproportionately benefit car-owning commuters. At the same time, food subsidies might better serve lower-income households who allocate a larger share of their income to groceries. “This study offers valuable insights to support more targeted policymaking,” Dr Ha notes, “enabling governments to design either universal or selective benefits depending on who is most affected.”
The research also explores which demographics were most able to adjust their behaviour in response to inflation. Female-led households, the elderly, those with higher levels of education, and the unemployed were found to be more flexible in adapting their consumption habits. Larger families and those residing in urban areas also demonstrated greater resilience, benefitting from economies of scale or better access to public transport. These findings underscore the importance of not only income but also lifestyle, location, and demographic factors in determining a household’s vulnerability or adaptability during periods of inflation.
Ultimately, the study recommends a more nuanced approach to inflation monitoring and policy intervention. While aggregate inflation metrics, such as the CPI, serve a useful purpose, they are insufficient on their own. Policymakers must delve deeper into household-level data to understand how different groups experience economic shocks. Spending patterns, consumption flexibility, and demographic composition can all act as early warning signs for where policy support is most urgently needed. As inflation continues to challenge economies worldwide, this research presents a compelling case for tailored, data-informed strategies that go beyond averages and address the lived realities of diverse households.
More information: Taiwon Ha, Heterogeneous Effect of Cost-Of-Living Crisis: Evidence From South Korea, Asian-Pacific Economic Literature. DOI: 10.1111/apel.12458
Journal information: Asian-Pacific Economic Literature Provided by Pusan National University