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.…