Classic inflation measures like the Consumer Price Index, published by the Bureau of Labor Statistics, are built based on so-called "consumption baskets," in which periodicities are underpinned by relevant annual surveys asking people about their shopping preferences and difficulties. This past summer, bankers and business leaders seemed to be increasingly worried about big and bold unstoppable price inflation nearly halving everyone’s pockets’ contents.

However, last week the U.S. government's official measure of inflation showed a cooling off in consumer prices for the second month in a row, suggesting that worries were overblown. President Joe Biden and Fed Chair Jerome Powell represent the "team transitory" — the ones saying these price increases are only temporary and in fact could be a good thing for the economy since they signal that wages are also on the rise.

New research from Harvard economist Alberto Cavallo shows both sides were sort of right: Inflation has been worse and more stable for wealthy people, and it's so far looking somewhat transitory for everyone else. The surveys used to construct the baskets show that lower-income households spend a higher share of their money on things like groceries and accommodation, while more affluent households can afford to spend larger shares of their incomes each month on things like transportation, recreation, and dining out.

Additionally, the Covid-19 pandemic drastically changed consumption patterns over the last year and a half. Prices for things that more affluent Americans spend more of their money on, like airline tickets and new cars, spiked amid reopening and supply chain disruptions, outpacing categories like groceries and housing costs that have remained relatively stable, in part due to interventions such as mortgage forbearance and a moratorium on evictions. Inflation is certainly an economic reality in the US, but the real impact of it ultimately comes down to what we are buying.