After three decades of low and stable inflation in advanced economies, prices rose sharply after the Covid-19 pandemic. In the euro area, headline inflation reached a peak of 10.6% in October 2022. The increase was marked and unexpected, with energy and food prices being the main drivers of the aggregate price dynamics. Did everyone bear the costs of this surge in the price level equally? Or was the burden uneven across the population?

In this paper, we focus on the most recent inflation episode of 2021–22 as an event study, and set out to estimate the heterogeneous footprints of surprise inflation across individual households in the four largest euro area countries: Germany, France, Italy and Spain. To do so, we lay out a tractable dynamic framework that illustrates all the various mechanisms through which inflation can have repercussions on household welfare, both on impact and over time. This simple model provides guidance for our measurement exercise. We then combine several micro and macro data sources that allow us to shed light on the relevance of all these mechanisms across the age and income distribution, and quantify them one by one.