We measure the heterogeneous welfare effects of the recent inflation surge across households in the Euro Area. A simple framework illustrating the numerous channels of the transmission mechanism of surprise inflation to household welfare guides our empirical exercise. By combining micro data and aggregate time series, we conclude that: (i) country-level average welfare costs –expressed as a share of 2021–22 income were larger than a typical recession, and heterogeneous, e.g., 3% in France and 8% in Italy; (ii) this inflation episode resembles an age-dependent tax, with the elderly losing up to 20%, and roughly half of the 25–44 year-old winning; (iii) losses were quite uniform across consumption quantiles because rigid rents served as a hedge for the poor; (iv) nominal net positions are the key driver of heterogeneity across-households; (v) the rise in energy prices generated vast variation in individual-level inflation rates, but unconventional fiscal policies were critical in shielding the most vulnerable households.

I document the evolution of nominal positions in the US over the last two decades and estimate the redistributive effects of several inflation episodes. I find that the US government gained around 4.5% of US GDP from the 2021 inflation shock, essentially at the expense of foreigners. In addition, there has been a significant concentration of nominal assets among the wealthiest middle-aged and elderly households, who lost substantially. Most other groups of households gained on average. The financial sector is extremely exposed to anticipated inflation. Raising the inflation target by 2pp would have generated a modest gain for the household sector, especially at the start of the Great Recession.