In past posts, we’ve looked at movement in household assets such as pensions and direct holdings of stocks and household liabilities such as home mortgages and consumer credit. Today, we look at how unexpected inflation can affect the value of these household assets and liabilities.
The FRED graph above shows data, adjusted for inflation, from the US Bureau of Labor Statistics: Blue bars show the net change in the dollar value of total assets, and red bars show the net change in the dollar value of total liabilities. (Btw, “consumer units” in the graph is just a less homey name for households.)
What the data show about inflation-adjusted changes in these assets and liabilities
1984-2000: In most years, assets and liabilities changed by similar amounts.
2001-2012: The value of liabilities consistently changed more than the value of assets.
2013-2020: The value of assets consistently changed more than the value of liabilities.
This alternating pattern strongly suggests that each side of a household’s balance sheet is impacted by different factors and may even respond differently to common shocks. Take, for example, the unexpected inflation recorded during 2021-2022.
What recent research shows about inflation’s effect on these assets and liabilities
Yu-Ting Chiang, Ezra Karger, and Mick Dueholm at the St. Louis Fed use survey data reported by the Board of Governors of the Federal Reserve System to study the impact of unexpected inflation on the payment streams related to different types of household assets and liabilities. They find that the net balance of wealth gains and losses from unexpected inflation is related to how wealthy a household is: In short, unexpected inflation makes the poorest and the richest households worse off, while middle-income households become slightly better off.
For more about this and other research, visit the publications page of the St. Louis Fed’s website, which offers an array of economic analysis and expertise provided by our staff.
How this graph was created: Search FRED for and select “Net Change in Total Assets: All Consumer Units.” The data, from 1984 to 2023, should be adjusted for consumer price inflation to compare their change over time. So, from the “Edit Graph” panel, use the “Edit Line” tab to search for “Consumer Price Index for All Urban Consumers: All Items in U.S. City Average.” Click “Add.” Type the formula (a/b)*100 and click “Apply.” Use the “Add Line” tab to search for and select “Net Change in Total Liabilities: All Consumer Units” and repeat the steps to customize and adjust the data by consumer price inflation.
Suggested by Diego Mendez-Carbajo.
