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Abstract

In recent years, food and energy prices worldwide have risen significantly. As domestic prices are closely connected to international commodity markets, small open economies are especially exposed to external shocks, making them highly sensitive to global price changes. Due to those inflationary pressures, households face erosion of real purchasing power and rising non-discretionary spending. This study compares how inflation affects people with different incomes in three different countries. Examination of this provides insight into how large economic changes, like inflation, actually affect people’s lives and how they spend their money. This helps us see the real changes in how well people are doing and how they are spending their money. The analysis uses four key variables. Real income is measured by household final consumption expenditure per capita.

Wage trends are reflected in GDP per person employed. Income inequality is measured by the Gini index, and household vulnerability is indicated by the percentage of spending on food. Data for countries covers the past 10 years. The dataset includes information from international sources, such as the World Bank, and from the national statistical agencies of the three countries mentioned. Consistent indicators across countries enable comparisons of inflation-related household vulnerability in Central Asia.

The empirical analysis uses three complementary approaches. First is the expenditure share regression, which examines how changes in real income and wage trends affect the portion of household spending on food. Second, the study uses a real income erosion model to show how inflation gradually erodes households' purchasing power. To see whether these effects are evenly shared, a comparison of inequality looks at how inflation interacts with income inequality across the three countries. Together, these methods show how macroeconomic inflation shocks lead to real changes in household welfare and spending habits.