Why are so many consumers unhappy in the current economic environment? We can think about the Cantillon Effect, names after the 18th century French economist. If there is new money in the system that can create inflation, it may first impact the rich who can increase their wealth. There may not be a general rise in prices as usually taught, albeit all prices may be increasing, but there are relative price changes which will affect different households differently. Because inflation can be localized and can be gradual, different groups will respond and be impacted by a shock to money that can lead to inflation. For example, increases food prices will have less impact on rich households because food is a smaller portion of their consumption basket.
Consumers who do not have wealth or do not have the knowledge or the capability to exploit increases in money may not be able to adjust or adapt to higher inflation pressures created from those who were able to exploit greater money earlier. These poorer households will be more impacted by the increase in goods without the ability to exploit the money increases.
Hence, there is a distributional effect from inflation that is often not avoided in the inflation discussion. The inflation shock over the last two years has had a disproportional effect on lower income household who are not able to generate a wealth effect or are not able to take advantage of a monetary shock.
The wealthy are feeling good about the economy. Poorer households who are unable to protect themselves from inflation may have a different view.
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