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Cheapflation Cycles
Kunal Sangani
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Working Paper 35235
DOI 10.3386/w35235
Issue Date May 2026
We document a new source of fluctuations in inflation inequality. When the cost of upstream inputs rises, varieties within a product category tend to have similar absolute price increases. However, the same absolute price increase constitutes a larger percentage change for low-price products, resulting in excess inflation at the low end (“cheapflation”). Since low-income households tend to buy lower-priced varieties, the inflation rates they face are disproportionately sensitive to upstream costs. Using data on food-at-home purchases, we show that this mechanism generates cycles in inflation inequality and excessive volatility in inflation for low-income households relative to high-income households. This channel parsimoniously accounts for observed fluctuations in inflation inequality over time, including surges in cheapflation and inflation inequality during both the Great Recession and the 2021–2023 post-pandemic inflation. Official statistics mask these within-category differences in inflation and thus understate the differences in inflation experienced by low- and high-income households by 70–90 percent. We provide evidence that this mechanism applies to a range of consumption categories beyond food at home. The same mechanism also leads to systematic differences in inflation across cities and import price inflation across countries in response to nationwide and global cost shocks.
Acknowledgements and Disclosures
I am grateful to David Baqaee, Ariel Burstein, Gabriel Chodorow-Reich, Javier Cravino, Xavier Jaravel, Robbie Minton, Emi Nakamura, Matt Rognlie, Andrei Shleifer, Ludwig Straub, and seminar participants at the Federal Reserve Board, Northwestern, the Minneapolis Fed, Princeton, the San Francisco Fed, Stanford, and the Society of Economic Dynamics. This paper contains my own analyses calculated (or derived) based in part on data from Nielsen Consumer LLC and marketing databases provided through the NielsenIQ Datasets at the Kilts Center for Marketing Data Center at The University of Chicago Booth School of Business. The conclusions drawn from the NielsenIQ data are those of the author and do not reflect the views of NielsenIQ. NielsenIQ is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
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Kunal Sangani, "Cheapflation Cycles," NBER Working Paper 35235 (2026), https://doi.org/10.3386/w35235.
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Macroeconomics
Business Cycles
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Economic Fluctuations and Growth
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