## CHAPTER 2 NAVIGATING A SHOCK-PRONE WORLD: LESSONS FROM COST-OF-LIVING CRISES

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### Introduction: scope, motivation, and purpose
- Rising cost of living is a major concern for households across much of the world (EP 2023; OECD 2023; Ipsos 2026).
- Abrupt increases in prices of basic necessities—food, transport, and housing-related expenses, including energy utilities—followed major disruptions to global commodity markets, including those since Russia’s invasion of Ukraine in 2022 and during the conflict in the Middle East in 2026.
- Objective: examine how different macroeconomic stabilization policies can help economies cope with sudden and acute increases in the cost of basic necessities while balancing trade-offs among preserving price signals, protecting vulnerable households, maintaining fiscal sustainability, and safeguarding macroeconomic stability.
- Core questions include:
  - How widespread, frequent, and heterogeneous have cost-of-living crises been across countries and over time?
  - What measures have policymakers used and how effective have they been?
  - How should policymakers prioritize fiscal tools when responding to cost-of-living crises?

### Main findings
- Frequency and nature of crises:
  - Cost-of-living crises are infrequent but can severely affect households and threaten macroeconomic stability.
  - Typically triggered by shocks that disrupt global commodity markets.
  - Episodes characterized by sustained increases in the relative prices of basic necessities and declines in real wages.
  - Inflation expectations, even at medium-term horizons, increase persistently.
- Distributional burden:
  - Low-income households devote a larger share of spending to basic necessities and experience significantly higher inflation during cost-of-living crises relative to higher-income households.
  - Accounting for inflation experienced by poorer households suggests substantially more people fell below the poverty line in emerging market and developing economies during 2021–24 than implied by measures based on aggregate inflation.
- Policy design matters:
  - Many countries relied heavily on broad-based price-suppressing interventions (reductions in consumption taxes, price subsidies, price controls).
  - Income-supporting measures, when used, often relied on broad rather than targeted instruments.
  - Targeted transfers are the most cost-effective way of supporting vulnerable households: they preserve price signals, facilitate necessary demand adjustment, and safeguard fiscal space.
  - Achieving comparable protection through price-suppressing measures can require between 3 and 22 times the fiscal resources, depending on country characteristics and shock source.
  - Subsidies can provide near-term support, but their benefits for low-income households are generally outweighed by subsequent fiscal consolidation costs; effectiveness of subsidies declines when fiscal space is limited and can become counterproductive when many countries deploy them simultaneously.
- Emerging market and developing economies:
  - Food and other basic necessities account for a larger share of household spending, making support costlier and underscoring the importance of targeted interventions.
  - When fiscal space is limited, the relative cost-effectiveness of targeted transfers is magnified.
  - Historically, many of these economies—particularly low-income developing countries—relied extensively on broad-based interventions.

### Definition and why cost-of-living crises matter
- Definition:
  - Episodes where prices of basic necessities rise sharply and abruptly, outpacing both prices of other goods and services and nominal wage growth.
  - Typically triggered by adverse supply shocks (global shocks like extreme weather, geopolitical tensions, wars, supply-chain disruptions, or country-specific shocks).
- Two distinguishing characteristics:
  - Demand for basic necessities is highly inelastic.
  - Basic necessities account for a large share of household spending:
    - Median advanced economy: basic necessities represent about 50 percent of total consumption for high-income households and 70 percent for low-income households.
    - Median low-income developing country: corresponding shares are about 70 and 80 percent, respectively.
- Policy roles:
  - Supply shocks that raise relative prices of necessities require demand adjustment; policy interventions cannot eliminate the need for adjustment.
  - Monetary policy: look through temporary spikes but be ready to tighten if inflation expectations drift upward or second-round effects emerge.
  - Fiscal policy: primary role is addressing distributional consequences; automatic stabilizers and social safety nets are first lines of defense but may be underdeveloped.

### Empirical identification and frequency
- Operational definition uses disaggregated consumer price indexes for 85 advanced and emerging market and developing economies over 2005–25.
- A country is in a cost-of-living crisis when:
  - The quarter-over-quarter increase in prices of basic necessities is two standard deviations above its country-specific mean; and
  - The increase in prices of other goods and services, and the quarter-over-quarter growth rate of nominal wages, is below that threshold and remains below it for two subsequent quarters.
- Frequency and clustering:
  - 75 out of the 85 studied economies experienced at least one crisis between 2005 and 2025.
  - 46 percent experienced at least two episodes.
  - 13 percent experienced more than two episodes.
  - Significant clustering around 2007–08, 2022–23, and to a lesser extent 2010–11.

### Drivers and role of global factors
- A dynamic factor model shows a large fraction of basic‑necessities inflation during crises can be accounted for by a global factor.
  - Median advanced economy: global factor accounts for about 70 percent of the inflation in prices of basic necessities during crises.
  - Median emerging market and developing economy: global factor accounts for slightly less than 40 percent.
- The common factor is closely linked to global commodity price movements; a composite commodity price index explains roughly half of the variation in the global factor.

### Macroeconomic dynamics around crisis onsets
- Relative prices and persistence:
  - Relative prices of basic necessities continue to increase for several quarters and peak only 1½ years after onset.
  - Prices of basic necessities remain, on average, about 7 percent higher than prices of other goods and services even three years after the start of a crisis.
  - Headline CPI continues to increase for longer.
- Real wages:
  - By definition, nominal wages lag prices at onset; the fall in real wages is persistent.
  - Three years after onset, real wages remain about 3 percent below their precrisis path.
- Inflation expectations:
  - One-year-ahead expectations remain about 2.7 percentage points higher in advanced economies four quarters after onset and 5.3 percentage points higher in emerging market and developing economies.
  - Five-year-ahead expectations three years after onset are about 0.3 percentage point higher in advanced economies and about 1.1 percentage points higher in emerging market and developing economies.
- Domestic demand and external balances:
  - Final domestic demand falls in the year following crisis onset by about 6 percent in emerging market and developing economies and by 8 percent in net energy importers, while remaining broadly resilient in advanced economies and net energy exporters.
  - Current account balance strengthens for net energy exporters by about 1.5 percentage points of GDP over the same period; it remains broadly unchanged in other country groups.
- Methodology caveat: estimates describe conditional moments around episodes rather than causal effects; identified episodes could reflect both demand and supply shocks.

### Distributional implications: inflation inequality and poverty
- Construction: combines household budget survey data with disaggregated price indexes to build income-specific consumption price indexes.
- Cumulative inflation gap between bottom and top income quintiles (median country, 2021–24):
  - 1.6 percentage points in the median advanced economy.
  - 3.2 percentage points in the median emerging market economy.
  - 4.5 percentage points in the median low-income developing country.
- Local-projection estimates:
  - On average, households in the bottom income quintile experienced nearly 2 percentage points more cumulative inflation than households in the top quintile about 1½ years after onset.
  - Inflation gap remained above 1 percentage point even three years later.
- Poverty implications (sample of 37 emerging markets and 25 low-income developing countries, 2015–24):
  - By 2024, the extreme poverty rate (share living on less than $2.15 a day in 2017 PPP terms) is, on average across countries, about 0.8 percentage point higher when adjusted poverty thresholds are used than when measured using aggregate CPI.
  - For the sample considered, this represents almost 23 million more people living in extreme poverty.

### Observed policy patterns and empirical assessment
- Narrative evidence (1996–2025) from Economist Intelligence Unit reports for 76 countries shows:
  - Policy measures spiked in 2007–08 and 2022–23.
  - At the peak following Russia’s invasion of Ukraine, nearly half of countries in the sample introduced at least one new measure.
  - Advanced economies relied somewhat more on income-supporting measures (roughly 60 percent of interventions during crisis periods); low-income developing countries used more price-suppressing measures.
  - Price-suppressing composition: advanced economies mainly used VAT and excise tax reductions; emerging market and developing economies used producer subsidies, price controls, and reductions in customs duties.
  - Income-supporting measures: advanced economies mainly used changes to income taxes and transfers (half targeted by income or age); emerging markets and low-income developing countries relied more on adjustments to minimum wages, public sector wages, and pensions.
- Difference-in-differences regressions with an AIPW estimator (panel of 75 countries, 1995–2025) – average effects after four quarters:
  - Income-supporting measures:
    - Effective at cushioning aggregate consumption.
    - Do not lead, on average, to statistically significant changes in aggregate inflation dynamics or inflation expectations.
    - Impact on fiscal balance is not statistically significant.
  - Price-suppressing measures:
    - Statistically significant reduction in near-term inflation in prices of basic necessities.
    - Reduce near-term inflation expectations slightly; no significant effect on longer-horizon expectations.
    - Do not significantly affect aggregate consumption.
    - Have a significant negative effect on fiscal balances; fiscal cost may be larger than estimated due to contingent liabilities and arrears.

### Model framework and calibrated simulations
- Model features:
  - Heterogeneous households (LIHHs and HIHHs); LIHHs devote larger share to basic necessities and lack access to financial markets.
  - Production network with 12 sectors and heterogeneous price stickiness.
  - Shocks calibrated to raise global commodity prices by about two standard deviations (about 70 percent for energy prices; about 45 percent for food prices).
  - Shock persistence: half-life of two quarters (about 80 percent of initial increase reversed one year after the shock).
  - Country calibrations: representative advanced economy, representative emerging market economy, representative low-income developing country (all three net energy importers; LIDCs assumed net food exporters).
  - Fiscal instruments: targeted transfers to LIHHs, untargeted transfers, consumer subsidies (cuts to VAT or excise), and producer subsidies.
  - Medium-term fiscal closure: lump-sum taxes increased so debt reverts to preshock level with a half-life of four to five years.
  - Comparative exercise: policies set to contain impact on households from higher consumer prices at half of what it would otherwise have been (subsidies set so pass-through is 50 percent; transfers set to 50 percent of additional cost for households to buy pre-shock quantities).
- No-policy baseline peaks (model simulation):
  - Global energy shock (~70 percent increase):
    - Domestic consumer prices of energy-related products increase by about 10 percent.
    - Annual consumer price inflation peaks at 1½ percentage points above target.
    - Private consumption falls by close to 2 percent.
    - Fall in consumption among LIHHs is almost 60 percent larger than among HIHHs in advanced economies.
  - Global food shock (~45 percent increase):
    - Domestic food bundle price rises by about 20 percent in low-income developing countries.
    - Household consumption declines: about 7½ percent in low-income developing countries, about 3.2 percent in emerging markets, and about 2.6 percent in advanced economies.
    - LIHHs experience losses about 80 percent larger than HIHHs in low-income developing countries.

### Comparative effects of fiscal instruments (selected calibrated outcomes)
- Advanced-economy calibration, energy shock:
  - Consumer subsidies:
    - Contain domestic energy price spike at 5 percent instead of 10 percent (50 percent pass-through).
    - Impact on public debt: about ½ percentage point of GDP.
    - Welfare gains mainly accrue to HIHHs; LIHHs remain worse off despite near-term support (when inflation expectations remain anchored).
  - Producer subsidies:
    - Similar peak outcomes for inflation, output, and household consumption as consumer subsidies; stimulate exports in downstream sectors.
    - Fiscal cost: increase in public debt more than three times larger than consumer subsidies—close to 1½ percentage points of GDP.
    - If shock is more persistent (only 40 percent of initial price spike reversed by end of first year), cost of producer subsidies would push debt upward by close to 3½ percentage points of GDP.
    - Accounting for lifetime consumption paths and future fiscal consolidation costs, all households face larger welfare losses under producer subsidies than in the no-intervention baseline.
  - Targeted versus untargeted transfers:
    - Targeted transfers protect the most vulnerable more effectively while preserving fiscal space relative to untargeted transfers and price-suppressing measures.
  - De-anchored inflation expectations scenario:
    - If surging retail energy prices push inflation expectations upward significantly (inflation in nonenergy sectors increases by about 0.85 percentage point more), consumer subsidies can yield welfare gains among LIHHs roughly comparable to targeted transfers.
    - Empirical evidence indicates that, on average, past price-suppressing interventions did not have a significant impact on medium-term inflation expectations despite near-term price relief.

### Annex quantitative highlights (selected table and scenario figures)
- Relative fiscal cost and welfare effects (Table 2.1: effects relative to no-policy baseline; welfare measured as percentage points of lifetime consumption; debt as peak deviation of debt-to-GDP over first three years):
  - Energy Shock (AEs, EMs, LIDCs):
    - Targeted Transfers — Welfare: 0.04, 0.09, 0.01; Debt: 0.17, 0.02, 0.09
    - Untargeted Transfers — Welfare: 0.01, 0.49, 0.00; Debt: 0.65, 0.02, 0.40
    - Consumer Subsidies — Welfare: −0.01, 0.41, −0.02; Debt: 0.53, −0.01, 0.31
    - Producer Subsidies — Welfare: −0.05, 1.35, −0.07; Debt: 2.35, −0.11, 2.09
  - Food Shock (AEs, EMs, LIDCs):
    - Targeted Transfers — Welfare: 0.09, 0.09, 0.09; Debt: 0.21, 0.06, 0.87
    - Untargeted Transfers — Welfare: 0.03, 1.28, 0.01; Debt: 2.74, 0.23, 4.34
    - Consumer Subsidies — Welfare: −0.01, 1.40, −0.06; Debt: 3.85, 0.32, 7.55
    - Producer Subsidies — (not considered for the food shock in the table)
- Illustrative comparisons:
  - Containing pass-through via producer subsidies in LIDCs would increase public debt by roughly 22 times as much as under targeted transfers (Online Annex Figure 2.5.8).
  - Comparable ratio: about 16 times in advanced economies (Figure 2.9) and 14 times in emerging markets (Online Annex Figure 2.5.9).
  - Short-lived global food shock: consumer subsidies in LIDCs to halve pass-through reduce surge in inflation by close to 4 percentage points and limit LIHHs’ consumption decline by 5.5 percentage points, at a fiscal cost with debt increasing by about 7½ percentage points of GDP.
    - Corresponding increase in debt: emerging markets about 4 percentage points of GDP; advanced economies about 1½ percentage points of GDP.
  - Targeted transfers deliver similar improvement in LIHHs’ consumption at roughly one-sixth of the fiscal cost implied by consumer subsidies in the cited scenario (consumer subsidies about six times as expensive for similar protection).

### Spillovers, limited fiscal space, and efficiency rankings
- Simultaneous consumer subsidies by many countries raise global prices:
  - Scenario where all countries introduce consumer subsidies to halve pass-through shows global oil prices increase by about 3 percentage points more.
- When all other countries use consumer subsidies in response to a global food supply shock while a LIDC does not:
  - Global food prices rise by an additional 25 percentage points relative to no-subsidy scenario.
  - Domestic food prices in LIDCs increase by almost 5 percentage points more.
  - LIHHs’ consumption declines by 2.2 percentage points more than in a scenario without spillovers.
- Under limited fiscal space (LIDCs that must finance support through higher taxes):
  - Targeted transfers remain effective; part of the transfer is offset by higher taxes but vulnerable households remain better off overall.
  - Consumer subsidies cease to generate welfare gains for LIHHs when financed contemporaneously through higher taxes rather than borrowing.
- Efficiency ranking (from simulations and empirical evidence):
  - Well-targeted income transfers are most effective at protecting the most vulnerable per unit of fiscal effort.
  - Price-suppressing measures protect in short term but are highly inefficient and can entail meaningful fiscal costs and adverse medium-term welfare outcomes.

### Distributional evidence from 2021–23 policy interventions (sample of 18 European countries)
- Absent policy support, households across all income quintiles would have experienced welfare losses between 5 and 6 percent of their income over the three years.
- With fiscal interventions, welfare losses were significantly cushioned:
  - After policy support, welfare losses for the bottom quintile amounted to less than 2 percent of income in that period, compared with more than 4 percent for higher-income households.
- Targeted transfers:
  - Lower-income households received the full amount of benefits from targeted transfers.
- Price-suppressing measures:
  - Benefits accrued mostly to higher-income households.
  - For each euro spent on price-suppressing measures for electricity, gasoline, and natural gas, lower-income households received less than 20 cents.
  - For gasoline measures, the top income quintile received about 40 cents per euro spent.
- Overall implication: broad-based price interventions and untargeted transfers provide some support to vulnerable households but at a substantially higher fiscal cost than well-targeted income transfers.

### Rents, housing, and interaction with monetary policy (Box 2.1 key findings)
- During cost-of-living crises, rents increase on average by 1 percentage point.
- The average increase in rents is 1.5 percentage points less than the overall CPI basket.
- The increase in rents occurs only when crisis episodes are accompanied by an increase in policy rates.
- Higher interest rates can hinder first-time homeownership transitions, generating rental demand shocks that can push rent prices upward in the short term.
- Renters tend to fall into lower income quintiles; homeowners—particularly where fixed-rate mortgages prevail—are largely shielded.

### Policy implications and recommendations (as stated)
- First lines of defense:
  - Monetary policy geared toward delivering low and stable inflation.
  - Social protection systems that allow automatic stabilizers to support vulnerable households.
- When intervention is necessary:
  - Preserve price signals to encourage demand adjustment needed to restore market balance.
  - Deliver assistance primarily through temporary income-support measures directed at the most vulnerable households, ideally using existing social protection systems that can be scaled up rapidly.
  - Reserve broad-based measures for exceptional circumstances when shocks are particularly severe and disruptive and only when fiscal space permits.
  - If price measures are unavoidable, design them narrowly on goods and services consumed disproportionately by vulnerable households and preserve as much underlying price signals as possible.
  - Ensure interventions are temporary and accompanied by well-communicated sunset clauses.
- Invest in fiscal infrastructure and stronger social protection systems to increase effectiveness of crisis responses, reduce reliance on costly emergency measures, and preserve fiscal space for future crises.

*Source: Chapter 2, "Navigating a Shock‑Prone World: Lessons from Cost‑of‑Living Crises," World Economic Outlook, International Monetary Fund, October 2026.*

### Introduction

### Introduction

### Scope and motivation
- The rising cost of living has emerged as a major concern for households across much of the world in recent years (EP 2023; OECD 2023; Ipsos 2026).
- Central to this concern have been abrupt increases in the prices of basic necessities—food, transport, and housing-related expenses, including energy utilities—following major disruptions to global commodity markets, including those since Russia’s invasion of Ukraine in 2022 and during the conflict in the Middle East in 2026.
- Events marked by severe surges in the prices of basic household necessities have been relatively infrequent but are not unprecedented, with the global food crisis in 2007–08 being a notable earlier episode.

### Chapter purpose and questions
- Objective: examine how different macroeconomic stabilization policies can help economies cope with sudden and acute increases in the cost of basic necessities while balancing trade-offs among preserving price signals, protecting vulnerable households, maintaining fiscal sustainability, and safeguarding macroeconomic stability.
- Core questions:
  - Anatomy of cost-of-living crises: How widespread, frequent, and heterogeneous have cost-of-living crises been across countries and over time? What have been their main drivers? How have key macroeconomic variables evolved, and how have outcomes for different segments of the population varied during episodes of such crises?
  - Policy responses and their effectiveness: What measures have policymakers used to respond to cost-of-living crises? How have their responses differed across episodes and country groups, and how effective have they been in reaching affected households?
  - Toolkit for a shock-prone world: How should policymakers prioritize fiscal policy tools when responding to cost-of-living crises? Under what circumstances are different fiscal interventions warranted, and what trade-offs do they entail?

### Methods and structure
- The chapter employs empirical evidence and model-based analysis, including:
  - Examination of prevalence, drivers, macroeconomic and distributional consequences over the past two decades.
  - Documentation and assessment of policy measures deployed and their effectiveness in influencing macroeconomic outcomes and cushioning households.
  - A novel model framework to evaluate effectiveness and costs of fiscal measures and derive lessons for prioritization.

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### Authors and support
- Authors: Marijn A. Bolhuis, Braulio Britos, Bertrand Gruss (co-lead), Chiara Maggi (co-lead), Galip Kemal Ozhan, and Sihwan Yang; support from Maryam Abdou, Owen Russell Desberg, Riya Varghese, and Yarou Xu. Adeleke Hakeem Adeyemi provided technical and computational assistance.
- Partial support: Macroeconomic Research in Low-Income Countries program of the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO) and the Macroeconomic Research on Climate Change and Emerging Risks in Asia program of the Ministry of Economy and Finance of the government of the Republic of Korea.

### Main findings

- Cost-of-living crises are infrequent but can severely affect households and threaten macroeconomic stability.
  - Typically triggered by shocks that disrupt global commodity markets.
  - Episodes characterized by sustained increases in the relative prices of basic necessities and declines in real wages.
  - Inflation expectations, even at medium-term horizons, increase persistently.
- The burden falls disproportionately on lower-income households.
  - Low-income households devote a larger share of spending to basic necessities and thus experience significantly higher inflation during cost-of-living crises relative to higher-income households.
  - Accounting for the inflation experienced by poorer households suggests substantially more people fell below the poverty line in emerging market and developing economies during 2021–24 than implied by measures based on aggregate inflation.
- Fiscal policy can help cushion impacts but design matters.
  - During past episodes, countries—particularly emerging market economies and low-income developing countries—relied heavily on broad-based price-suppressing interventions, including reductions in consumption taxes, price subsidies, and price controls.
  - Income-supporting measures, when used, often relied on broad rather than targeted instruments.
  - Targeted transfers are the most cost-effective way of supporting vulnerable households: they preserve price signals, facilitate necessary demand adjustment, and safeguard fiscal space.
  - Achieving comparable protection through price-suppressing measures can require between 3 and 22 times the fiscal resources, depending on country characteristics and shock source.
  - Subsidies can provide near-term support, but their benefits for low-income households are generally outweighed by subsequent fiscal consolidation costs; effectiveness of subsidies declines when fiscal space is limited and can become counterproductive when many countries deploy them simultaneously.
- Emerging market and developing economies face starker policy trade-offs than advanced economies.
  - Food and other basic necessities account for a larger share of household spending in these economies, making support costlier and underscoring the importance of targeted interventions.
  - When fiscal space is limited, the relative cost-effectiveness of targeted transfers is magnified.
  - Historically, many of these economies—particularly low-income developing countries—relied extensively on broad-based interventions, likely reflecting limitations in social protection infrastructure.

### Cost-of-Living Crises: A Primer

### Definition
- Cost-of-living crises are defined as episodes in which:
  - The prices of basic necessities rise sharply and abruptly, outpacing both the prices of other goods and services and nominal wage growth.
  - Such episodes are typically triggered by adverse supply shocks that raise the relative price of necessities (global shocks like extreme weather, geopolitical tensions, wars, supply-chain disruptions, or country-specific shocks such as local weather events).

### Why they matter
- Two distinguishing characteristics:
  - Demand for basic necessities is highly inelastic.
  - Basic necessities account for a large share of household spending, especially among lower-income households.
    - In the median advanced economy, basic necessities represent about 50 percent of total consumption for high-income households and 70 percent for low-income households.
    - In the median low-income developing country, the corresponding shares are about 70 and 80 percent, respectively.
- These characteristics imply greater welfare and distributional consequences than shocks raising relative prices of nonessential goods or demand-driven inflation.

### Policy roles
- Supply shocks that raise relative prices of necessities require demand adjustment to restore balance; policy interventions cannot eliminate the need for adjustment.
- Monetary policy: textbook prescription is to look through temporary spikes in headline inflation caused by supply shocks while being ready to tighten if inflation expectations drift upward or second-round effects emerge.
- Fiscal policy: primary role in addressing distributional consequences.
  - Automatic stabilizers and social safety nets are first lines of defense, but may be underdeveloped or insufficient for exceptionally severe shocks.
  - Policymakers have often resorted to ad hoc discretionary interventions when food security, social cohesion, or macroeconomic stability were threatened.
  - Fiscal support that runs counter to monetary conditions (for example, when inflation is above target and expectations are drifting) could jeopardize disinflation efforts.

### Scope of “basic necessities”
- Basic necessities in the chapter: food, transport, and housing-related expenses, including utilities such as electricity, gas, and other fuels.
- In national price statistics, these correspond to COICOP divisions: Food and non-alcoholic beverages (COICOP 1), Housing, water, electricity, gas, and other fuels (COICOP 4), and Transport (COICOP 7).

### Anatomy of Cost-of-Living Crises

### Empirical identification
- Operational definition uses disaggregated consumer price indexes for 85 advanced and emerging market and developing economies over 2005–25.
- A country is considered in a cost-of-living crisis when:
  - The quarter-over-quarter increase in prices of basic necessities is two standard deviations above its country-specific mean;
  - The increase in prices of other goods and services, and the quarter-over-quarter growth rate of nominal wages, is below that threshold and remains below it for two subsequent quarters.

### Frequency and clustering
- Most economies (75 out of the 85 studied) experienced at least one cost-of-living crisis between 2005 and 2025.
- 46 percent experienced at least two episodes.
- 13 percent experienced more than two episodes.
- Significant clustering around 2007–08, 2022–23, and to a lesser extent 2010–11; outside these windows, a handful of countries, mostly emerging market and developing economies, experienced crises.

### Drivers and role of global factors
- A dynamic factor model indicates a large fraction of basic-necessities inflation during crises can be accounted for by a global factor.
  - For the median advanced economy, the global factor accounts for about 70 percent of the inflation in the prices of basic necessities recorded during cost-of-living crises.
  - For the median emerging market and developing economy, the global factor accounts for slightly less than 40 percent of the inflation in the prices of basic necessities during these episodes.
- The common factor is closely linked to global commodity price movements.
  - A composite commodity price index explains roughly half of the variation in the global factor.

### Macroeconomic dynamics around cost-of-living crises

- Local-projection regressions trace key macroeconomic variables around identified crisis onsets.
- Dynamics of basic necessities and CPI:
  - By definition, episodes are marked by a spike in the relative prices of basic necessities.
  - On average, the relative prices of basic necessities continue to increase for several quarters and peak only 1½ years after onset.
  - Persistence: prices of basic necessities remain, on average, about 7 percent higher than the prices of other goods and services even three years after the start of a cost-of-living crisis.
  - Headline CPI, initially bolstered by the surge in basic necessities, continues to increase for longer.

### Policy responses and implications

- Observed policy patterns:
  - During 2022–23 cost-of-living crisis many countries complemented monetary tightening with measures including transfers to households, price caps, subsidies, tax cuts, and export restrictions.
  - Interventions were frequently rapid, amid political pressure and protests, and consisted largely of broad-based and untargeted measures.
  - Policy actions observed so far in 2026 point to a similar pattern.
- Effectiveness and trade-offs:
  - Targeted transfers are shown to be most cost-effective for supporting vulnerable households while preserving price signals and fiscal space.
  - Price-suppressing measures can require 3 to 22 times the fiscal resources to achieve comparable protection.
  - Subsidies’ near-term benefits are generally outweighed by later fiscal consolidation costs; their effectiveness weakens when fiscal space is limited and can be counterproductive when deployed broadly across countries.
- For emerging market and developing economies:
  - Larger share of spending on basic necessities makes broad-based support more costly.
  - Limitations in social protection infrastructure help explain reliance on broad-based interventions in past episodes.

*Source: Chapter 2, "Navigating a Shock-Prone World: Lessons from Cost-of-Living Crises," World Economic Outlook, International Monetary Fund, October 2026.*

### 1. Cost-of-Living Crisis Episodes

### 1. Cost-of-Living Crisis Episodes

### Episodes, Global Factor, and Commodity Prices
- Panel evidence summarizes episodes of countries entering a cost-of-living crisis in quarters shown; the share of inflation in prices of basic necessities explained by a common (global) factor is estimated from a dynamic factor model.
- The global factor evolution is plotted alongside the year-over-year percent change in the all-commodity price index (IMF Primary Commodity Price System).
- Sources used: Eurostat, Household Budget Surveys; IMF, Primary Commodity Prices database; IMF, Consumer Price Index dataset; Kpodar and Liu 2022; Luxembourg Income Study Database; national sources; and IMF staff calculations.
- Note on data presentation: box edges = interquartile range, line inside box = median, whiskers = 10th and 90th percentiles. AEs = advanced economies; EMDEs = emerging market and developing economies.

### Prices, Wages, Inflation Expectations, and Real/External Dynamics
- Relative prices of basic necessities spike and the headline CPI exhibits a sustained increase beyond that spike, reflecting first-round and sizable second-round effects.
- Real wages:
  - By definition, nominal wages lag prices at onset; the fall in real wages is persistent.
  - Three years after onset of a crisis episode, real wages remain about 3 percent below their precrisis path.
- Inflation expectations:
  - One-year-ahead expectations remain about 2.7 percentage points higher in advanced economies four quarters after onset and 5.3 percentage points higher in emerging market and developing economies.
  - Five-year-ahead expectations rise modestly initially; three years after onset they are, on average, about 0.3 percentage point higher in advanced economies and about 1.1 percentage points higher in emerging market and developing economies.
  - Implication: cost-of-living crises may contribute to some de-anchoring of inflation expectations.
- Final domestic demand and current account:
  - Final domestic demand falls in the year following crisis onset by about 6 percent in emerging market and developing economies and by 8 percent in net energy importers, while remaining broadly resilient in advanced economies and net energy exporters.
  - The current account balance strengthens for net energy exporters by about 1.5 percentage points of GDP over the same period; it remains broadly unchanged in other country groups.
- Methodology and caveats:
  - Estimates describe conditional moments around episodes rather than causal effects; identified episodes could reflect both demand and supply shocks.
  - Dynamics are broadly comparable when episodes are detected using global commodity prices or when exogenous oil supply shocks are employed in local-projection regressions.
  - Evidence suggests identified episodes largely capture global supply shocks, though other shock types cannot be ruled out.

### Distributional Implications: Inflation Inequality and Poverty
- Construction: combines household budget survey data with disaggregated price indexes to construct income-specific consumption price indexes (following Lokshin, Sajaia, and Torre 2025; Jaravel 2026).
- Inflation inequality during cost-of-living crises:
  - Inflation for low-income households is markedly higher than for high-income households, especially in emerging market and developing economies.
  - Cumulative inflation gap between bottom and top income quintiles (median country, 2021–24):
    - 1.6 percentage points in the median advanced economy.
    - 3.2 percentage points in the median emerging market economy.
    - 4.5 percentage points in the median low-income developing country.
- Local-projection estimates (full sample):
  - On average across countries and episodes, households in the bottom income quintile experienced nearly 2 percentage points more cumulative inflation than households in the top quintile about 1½ years after onset.
  - The inflation gap remained above 1 percentage point even three years later.
  - Well-identified oil supply shocks generate persistent increases in the inflation gap; demand-driven inflationary shocks proxied by monetary policy surprises do not produce a similar widening.
- Poverty implications (sample of 37 emerging markets and 25 low-income developing countries, 2015–24):
  - Adjusted poverty rates built using income-specific consumption price indexes diverge from standard metrics during 2021–24.
  - By 2024, the extreme poverty rate (share living on less than $2.15 a day in 2017 PPP terms) is, on average across countries, about 0.8 percentage point higher when adjusted poverty thresholds are used than when measured using aggregate CPI.
  - For the sample considered, this represents almost 23 million more people living in extreme poverty.
- Summary implication: cost-of-living crises produce persistent spikes in costs of basic necessities, erode real wages, weigh on domestic demand, push medium-term inflation expectations upward, and disproportionately harm low-income households with important distributional and poverty consequences.

### Policy Responses in Past Crises: Narrative Evidence and Stylized Facts
- Narrative database:
  - Constructed from text analysis of quarterly Economist Intelligence Unit reports for 26 advanced economies, 36 emerging markets, and 14 low-income developing countries between 1996 and 2025.
  - Episodes of rising food and energy prices are identified from textual references starting in 1996; classification of fiscal policy interventions relies exclusively on these narrative references.
- Timing and intensity:
  - Introduction of policy measures spiked in 2007–08 and 2022–23.
  - At the peak following Russia’s invasion of Ukraine, nearly half of countries in the sample introduced at least one new measure to mitigate rising prices.
- Types and cross-country patterns:
  - Countries extensively used price interventions; characteristics differ across country groups:
    - Advanced economies relied somewhat more on income-supporting measures, accounting for roughly 60 percent of interventions during crisis periods.
    - Low-income developing countries made greater use of price-suppressing measures, likely reflecting more limited social protection infrastructure.
  - Composition of price-suppressing measures:
    - Advanced economies mainly used value-added tax and excise tax reductions.
    - Emerging market and developing economies more often used producer subsidies, price controls, and reductions in customs duties.
  - Income-supporting measures:
    - Advanced economies implemented mainly changes to income taxes and transfers; half of these were targeted to specific groups by income or age.
    - Emerging markets and low-income developing countries relied more on adjustments to minimum wages, public sector wages, and pensions.
- Trade-off noted: the mix of price-suppressing and income-supporting measures often reflects the need for rapid temporary support constrained by social safety net infrastructure.

### Macroeconomic Effectiveness of Policy Interventions
- Empirical approach:
  - Series of difference-in-differences regressions with augmented inverse propensity weighted (AIPW) estimator on a quarterly panel; results refer to four quarters after policy introduction (panel of 75 countries, 1995–2025).
  - Caveats: treatment variable captures use of an instrument rather than size; measures may be part of broader policy packages; fiscal costs may materialize with a lag.
- Average effects after four quarters:
  - Income-supporting measures:
    - Effective at cushioning aggregate consumption.
    - Do not lead, on average, to statistically significant changes in aggregate inflation dynamics or inflation expectations.
    - Impact on fiscal balance is not statistically significant (could reflect contained overall cost when targeted or offset reductions in other spending).
  - Price-suppressing measures:
    - Statistically significant effect on inflation in prices of basic necessities (they reduce near-term inflation in necessities).
    - Reduce near-term inflation expectations slightly; no significant effect on longer-horizon expectations.
    - Do not have a significant effect on aggregate consumption.
    - Have a significant negative effect on fiscal balances.
    - Fiscal cost may be larger than estimated due to contingent liabilities, arrears, and losses in state-owned enterprises that materialize with a lag.

### Distributional Effectiveness of Policy Interventions: Model-Based Evaluation
- Framework:
  - Theoretical model captures household heterogeneity in consumption baskets, income, and asset/liability holdings; uses detailed policy intervention data to evaluate welfare effects across household groups and instrument types (price-suppressing measures; targeted or untargeted transfers).
  - References: Cardoso and others 2022; April 2023 Fiscal Monitor, Chapter 2; Pallotti and others 2024; Del Canto and others 2025.
- Results for 18 European countries during 2021–23:
  - Absent policy support, households across all income quintiles would have experienced welfare losses between 5 and 6 percent of their income over the three years.
  - With fiscal interventions, welfare losses were significantly cushioned:
    - After policy support, welfare losses for the bottom quintile amounted to less than 2 percent of income in that period, compared with more than 4 percent for higher-income households.
  - Decomposition by instrument:
    - Low-income households benefited roughly equally from income-supporting and price-suppressing measures.
    - Most gains accruing to higher-income households stemmed from price-suppressing interventions.
- Fiscal cost note: fiscal interventions can be costly; counterfactual series without policies are constructed from the intervention-level database in Sgaravatti and others (2023).

*International Monetary Fund | October 2026 — Chapter 2, "Navigating a Shock-Prone World: Lessons from Cost-of-Living Crises"*

### 1. Welfare Changes by Income Quintile, 2021–23

### Welfare Changes by Income Quintile, 2021–23

### Sample and measurement
- Results are based on a sample of 18 European countries between 2021 and 2023.  
- Welfare impacts are expressed as a share of households’ three-year income.  
- Panel descriptions (as reported):  
  - Panel 1: average welfare impact in 2021–23 across countries (weighted by 2019 GDP at purchasing power parity), by household income quintile.  
  - Panel 2: cross-country distribution of welfare changes (as a share of three‑year income) due to policy interventions during 2021–23, by household income quintiles and by type of policy instrument. The edges of the boxes represent the interquartile range, the black square indicates the median country, and the whiskers denote the 10th and 90th percentiles.  
  - Panel 3: allocation across income quintiles of fiscal spending on transfers and on measures suppressing the prices of electricity, natural gas, and gasoline.

### Distributional findings from 2021–23 policy interventions
- Targeted transfers:
  - Lower-income households received the full amount of benefits from targeted transfers.  
- Price-suppressing measures:
  - Benefits accrued mostly to higher-income households.  
  - For each euro spent on price-suppressing measures for electricity, gasoline, and natural gas, lower-income households received less than 20 cents.  
  - In the case of measures on gasoline, the top income quintile of the population received about 40 cents per euro spent.  
- Overall implication:
  - Broad-based price interventions and untargeted transfers provide some support to vulnerable households, but at a substantially higher fiscal cost than well-targeted income transfers.

### Model setup used to assess policy trade-offs (summary of features and calibrations)
- Households:
  - Heterogeneous households: low-income households (LIHHs) and high-income households (HIHHs). LIHHs devote a larger share of expenditure to basic necessities and lack access to financial markets.  
  - Low-income households are defined in the calibration as: bottom income quintile in advanced economies; bottom two income quintiles in emerging market economies and low‑income developing countries.  
- Production and shocks:
  - Production network with 12 sectors in home economy and rest of world; heterogeneous price stickiness across sectors.  
  - Cost-of-living crises triggered by transitory shocks to global supply of energy or food. Shocks calibrated to raise relevant global commodity prices by about two standard deviations (close to 70 percent for energy prices; about 45 percent for food prices).  
  - Shock persistence: half-life of two quarters so about 80 percent of the initial price increase is reversed one year after the shock.  
- Country coverage:
  - Calibrated separately for a representative advanced economy, a representative emerging market economy, and a representative low-income developing country. All three are net energy importers; low-income developing countries are assumed to be net food exporters.  
- Policy and other assumptions:
  - Monetary policy follows a Taylor rule focused on headline CPI with a positive weight on projected inflation.  
  - Fiscal instruments include targeted transfers to LIHHs, untargeted transfers (evenly across households), consumer subsidies (cuts to VAT or excise taxes), and producer subsidies (reduce input costs for firms).  
  - When fiscal measures are deployed, lump-sum taxes on all households are increased over the medium term so debt reverts to the preshock level with a half-life of four to five years.  
  - Comparative exercise: policies set to contain impact on households from higher consumer prices at half of what it would otherwise have been—subsidies set so pass-through is 50 percent; transfers set to 50 percent of additional cost for households to buy pre-shock quantities.

### No-policy baseline effects of supply shocks (model simulation peaks)
- Global energy shock (about 70 percent increase in global energy prices):
  - Domestic consumer prices of energy-related products increase by about 10 percent.  
  - Annual consumer price inflation peaks at 1½ percentage points above target.  
  - Private consumption falls by close to 2 percent.  
  - Fall in consumption among LIHHs is almost 60 percent larger than among HIHHs in advanced economies.  
- Emerging markets and low-income developing countries under energy shock:
  - Impact on activity larger than in advanced economies, but households generally less exposed to energy prices; aggregate consumption falls by less than in advanced economies.  
  - In emerging markets, decline in consumption among LIHHs comparable to HIHHs; in low-income developing countries, LIHHs’ decline is smaller.  
- Global food shock (about 45 percent increase in global food prices):
  - Domestic food bundle price rises by about 20 percent in low-income developing countries.  
  - Household consumption declines: about 7½ percent in low-income developing countries, about 3.2 percent in emerging markets, and about 2.6 percent in advanced economies.  
  - LIHHs experience losses about 80 percent larger than HIHHs in low-income developing countries.  
  - Low-income developing countries benefit from an improvement in terms of trade as net food exporters, but direct agricultural production losses and weaker domestic demand more than offset these gains.

### Comparative effects of fiscal instruments in response to an energy price shock (advanced-economy calibration)
- Consumer subsidies:
  - Contain headline inflation and reduce need for monetary tightening, easing output decline.  
  - Contain the spike in domestic energy prices at 5 percent instead of 10 percent (50 percent pass-through).  
  - Impact on public debt: about ½ percentage point of GDP.  
  - Welfare gains from such subsidies accrue mainly to HIHHs; LIHHs remain worse off despite near-term support (when inflation expectations remain anchored).  
- Producer subsidies:
  - Similar peak outcomes for inflation, output, and household consumption as consumer subsidies, but stimulate exports in downstream sectors.  
  - Fiscal cost: increase in public debt more than three times larger than consumer subsidies—close to 1½ percentage points of GDP.  
  - When shock is more persistent (only 40 percent of initial price spike reversed by end of first year), cost of producer subsidies would push debt upward by close to 3½ percentage points of GDP.  
  - Once lifetime consumption paths and future fiscal consolidation costs are accounted for, all households face larger welfare losses under producer subsidies than in the no-intervention baseline.  
- Untargeted versus targeted transfers:
  - Targeted transfers protect the most vulnerable more effectively while preserving fiscal space relative to untargeted transfers and price-suppressing measures.  
- De-anchored inflation expectations scenario:
  - Illustrative exercise: if surging retail energy prices push inflation expectations upward significantly (inflation in nonenergy sectors increases by about 0.85 percentage point more), consumer subsidies can reduce need for monetary tightening and can yield welfare gains among LIHHs roughly comparable to targeted transfers.  
  - Empirical evidence cited indicates that, on average, past price‑suppressing interventions did not have a significant impact on medium-term inflation expectations despite near-term price relief.

### Spillovers and efficiency considerations
- Multiple countries introducing consumer subsidies simultaneously raises global prices:
  - Model scenario where all countries introduce consumer subsidies to halve pass-through shows global oil prices increase by about 3 percentage points more.  
- Efficiency ranking (qualitative from simulations and empirical evidence):
  - Well-targeted income transfers appear more effective at protecting the most vulnerable per unit of fiscal effort than broad-based price-suppressing measures and untargeted transfers.  
  - Price-suppressing measures can protect consumers in the short term but are highly inefficient and can entail meaningful fiscal costs and adverse medium-term welfare outcomes.

*Source: IMF staff calculations and chapter text in CHAPTER 2, Navigating a Shock‑Prone World: Lessons from Cost‑of‑Living Crises (figures and model simulations summarized).*

### Annex Figure 2.2.1.

### Annex Figure 2.2.1.

### Key findings from the model simulations
- Targeted transfers preserve price signals, support household consumption, and are the most cost-effective fiscal intervention for protecting vulnerable households (LIHHs).
- Untargeted transfers support LIHHs’ consumption relative to the no-policy baseline but have little impact on HIHHs’ consumption because HIHHs save most of the additional income.
- Under the model’s baseline assumptions, the peak increase in public debt from targeted transfers is about one-fifth of the increase under untargeted transfers or consumer subsidies and about one-sixteenth of that under producer subsidies.
- Achieving a similar degree of protection for vulnerable households through subsidies can require between 3 and 22 times the fiscal resources as targeted transfers, depending on the instrument, the shock, and the economy.
- When the shock is more persistent, the advantage of targeted transfers becomes even larger.
- When many countries deploy consumer subsidies simultaneously in response to a global food supply shock, global food prices would rise by an additional 25 percentage points and domestic food prices in low-income developing countries would increase by almost 5 percentage points more (relative to a scenario in which no country uses subsidies), worsening outcomes for vulnerable households.

### Fiscal instrument comparisons and quantitative highlights
- Relative fiscal cost and welfare effects (Table 2.1 reports effects relative to no-policy baseline; welfare measured as percentage points of lifetime consumption; debt measured as peak deviation of the debt-to-GDP ratio over the first three years after a shock):
  - Energy Shock (AEs, EMs, LIDCs):
    - Targeted Transfers — Welfare: 0.04, 0.09, 0.01; Debt: 0.17, 0.02, 0.09
    - Untargeted Transfers — Welfare: 0.01, 0.49, 0.00; Debt: 0.65, 0.02, 0.40
    - Consumer Subsidies — Welfare: −0.01, 0.41, −0.02; Debt: 0.53, −0.01, 0.31
    - Producer Subsidies — Welfare: −0.05, 1.35, −0.07; Debt: 2.35, −0.11, 2.09
  - Food Shock (AEs, EMs, LIDCs):
    - Targeted Transfers — Welfare: 0.09, 0.09, 0.09; Debt: 0.21, 0.06, 0.87
    - Untargeted Transfers — Welfare: 0.03, 1.28, 0.01; Debt: 2.74, 0.23, 4.34
    - Consumer Subsidies — Welfare: −0.01, 1.40, −0.06; Debt: 3.85, 0.32, 7.55
    - Producer Subsidies — (not considered for the food shock in the table)
- Specific illustrative comparisons cited in the analysis:
  - Containing pass-through from global to domestic energy prices by one-half via producer subsidies in low-income developing countries would increase public debt by roughly 22 times as much as under targeted transfers (Online Annex Figure 2.5.8).
  - The comparable ratio is about 16 times in advanced economies (Figure 2.9) and 14 times in emerging markets (Online Annex Figure 2.5.9).
  - In the short-lived global food shock, using consumer subsidies in low-income developing countries to contain pass-through to domestic food prices to one-half reduces the surge in inflation by close to 4 percentage points and limits the decline in LIHHs’ consumption by 5.5 percentage points, at a fiscal cost with debt increasing by about 7½ percentage points of GDP.
  - The corresponding increase in debt for emerging markets is close to 4 percentage points of GDP and for advanced economies about 1½ percentage points of GDP for the same shock.
  - Targeted transfers deliver a similar improvement in LIHHs’ consumption at roughly one-sixth of the fiscal cost implied by consumer subsidies in the cited scenario, implying consumer subsidies are about six times as expensive for achieving a similar degree of protection.

### Outcomes under limited fiscal space and spillover scenarios
- When low-income developing countries cannot increase deficits and must finance support through higher taxes, simulations suggest:
  - Targeted transfers remain effective; part of the transfer is offset by higher taxes borne by all households, but vulnerable households remain better off overall.
  - Consumer subsidies cease to generate welfare gains for LIHHs when financed contemporaneously through higher taxes rather than borrowing.
- Spillover scenario: If all other countries use consumer subsidies in response to a global food supply shock while low-income developing countries do not:
  - Global food prices rise by an additional 25 percentage points relative to no-subsidy scenario.
  - Domestic food prices in low-income developing countries increase by almost 5 percentage points more.
  - LIHHs’ consumption declines by 2.2 percentage points more than in a scenario without spillovers.
  - These spillovers can worsen outcomes for vulnerable households in countries lacking fiscal space to respond.

### Policy implications and recommendations (as stated)
- First line of defense against temporary supply shocks: monetary policy geared toward delivering low and stable inflation, alongside social protection systems that allow automatic stabilizers to support vulnerable households.
- When intervention is deemed necessary:
  - Preserve price signals to encourage demand adjustment needed to restore market balance.
  - Deliver assistance primarily through temporary income-support measures directed at the most vulnerable households, ideally using existing social protection systems that can be scaled up rapidly.
  - Reserve broad-based measures for exceptional circumstances when shocks are particularly severe and disruptive and only when fiscal space permits.
  - If price measures are unavoidable, design them narrowly on goods and services consumed disproportionately by vulnerable households and preserve as much underlying price signals as possible.
  - Ensure interventions are temporary and accompanied by well-communicated sunset clauses.
- Invest in fiscal infrastructure and stronger social protection systems to increase effectiveness of crisis responses, reduce reliance on costly emergency measures, and preserve fiscal space for future crises.

*Source: IMF staff calculations.*

### CHAPTER 2 NAVIGATING A SHOCK-PRONE WORLD: LESSONS FROM COST-OF-LIVING CRISES

### CHAPTER 2 NAVIGATING A SHOCK-PRONE WORLD: LESSONS FROM COST-OF-LIVING CRISES

### Box 2.1. Cost-of-Living Crises, Rents, and Monetary Policy — Key findings
- During cost-of-living crises, rents increase on average by 1 percentage point.
- The average increase in rents is 1.5 percentage points less than the overall consumer price index (CPI) basket.
- The increase in rents occurs only when crisis episodes are accompanied by an increase in policy rates.
- Higher interest rates can hinder transitions into first-time homeownership, generating a rental demand shock that can push rent prices upward in the short term (citing Dias and Duarte 2019, 2022; Abramson, De Llanos, and Han 2025; De Stefani 2025).
- In countries where rents and owner-equivalent imputed rents are a large component of the CPI basket, this channel can work against the disinflationary effects of monetary tightening following the onset of cost-of-living crises.

### Interaction with monetary policy and implications for inflation targeting
- Rents’ dynamics during cost-of-living crises depend on central banks’ responses: the rent increase is conditional on an MP response dummy taking value 1 if policy rates increase in the quarter following the onset of a crisis and 0 otherwise.
- Controls in the local-projection framework include three lags of changes in the dependent variable, house prices and GDP, and country fixed effects.
- Whiskers in the reported estimates represent 90 percent confidence intervals based on standard errors clustered at the quarter level.
- Note: Cost-of-living crises are identified from the change in food, transportation, and fuel costs and exclude housing costs.

### Distributional implications
- Renters tend to fall into the lower income quintiles.
- Homeowners—particularly in countries where fixed-rate mortgages prevail—are largely shielded from rising shelter costs induced by monetary tightening.
- Renters face pass-through of rental costs, exacerbated by the large weight of rents in their consumption basket.
- During 2021–24, renters experienced higher total inflation relative to homeowners in the same income bracket.
- Panel 1 (Figure 2.1.2) shows rents as a share of total household consumption for renters and the share of renters, by income quintile and averaged across countries using 2026 PPP GDP weights.
- Panel 2 (Figure 2.1.2) shows the difference in overall inflation experienced by renters and homeowners over 2021–24, by income quintile; owner-equivalent imputed rents are excluded from this calculation.

### Data, empirical framework, and sample
- Panel 1 (Figure 2.1.1) reports cumulative responses eight quarters after the onset of a cost-of-living crisis based on a local-projection framework estimated over 2001–22.
- Panel 2 (Figure 2.1.1) plots the average weight of rents, owner-equivalent imputed rents, and other housing costs (for example, utilities) in CPI across the same set of countries included in the regression analysis reported in panel 1.
- Data sources cited: Eurostat; Haver Analytics; IMF, World Economic Outlook; IMF staff calculations.
- Figure notes: Data labels in the figure use International Organization for Standardization (ISO) country codes. COLCs = cost-of-living crises; CPI = consumer price index; MP = monetary policy.
- The sample for Figure 2.1.2 includes Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Germany, Greece, Finland, France, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Romania, the Slovak Republic, Slovenia, and Spain.
- Panel 1 of Figure 2.1.2 uses PPP-weighted averages across countries.

### Selected cited literature (examples from box)
- Abramson, Boaz; De Llanos, Pablo; Han, Lu. 2025. “Monetary Policy and Rents.” Working Paper, Columbia Business School, Columbia University, New York.
- Dias, Daniel A., and João B. Duarte. 2019 and 2022. Studies on monetary policy, housing rents, and homeownership.
- De Stefani, Alessia. 2025. “Missing Home-Buyers and Rent Inflation: The Role of Interest Rates and Mortgage Underwriting Standards.” IMF Working Paper 25/90, International Monetary Fund, Washington, DC.

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_Source: https://www.imf.org/-/media/files/publications/weo/2026/october/english/ch2.pdf_