AAmericans paid higher prices for everything from utilities to groceries in 2021. But as the specter of inflation haunts the US economy for the first time in decades, these are the poorest members of society that suffered the most, a phenomenon economists call “inflation inequality.”
The US inflation rate has risen 6.8% since last November, according to data from the Department of Labor, the largest annual increase in nearly 40 years. These price increases were largely driven by essential goods and services: transport, energy, housing and food.
The overall figure of 6.8% does not tell the whole story. Not everything has become more expensive. Airfares, glasses and medicines have remained relatively stable or have even become more affordable. But the prices of several essential goods and services have skyrocketed.
The cost of fuel is up 58% from a year ago.
The costs of transport (+ 16.5%) and utilities (+33%) have increased dramatically over the past year.
The cost of food increased overall by 6.1%, driven by higher prices for meat, poultry and fish (+ 13.1%).
“It’s getting harder and harder to use this money to get what people need,” said Christopher Wimer, co-director of the Center on Poverty and Social Policy at Columbia University.
Price inflation hurts poor Americans more
While all Americans have seen prices rise, the tangible effects of inflation are felt most strongly by poor households.
“There is this view that inflation is the same for everyone when in fact it is not,” said Xavier Jaravel of the London School of Economics.
At a basic level, low-income households do not earn enough money to pay for even the essentials: housing, transportation, food and health care. So when the price of something like gasoline goes up 58%, households have to make tough choices about what to remove.
Soaring fuel prices have had a disproportionate impact on low-income people who use cars to get to work. Meanwhile, shelter costs rose 3.8% – the biggest 12-month increase since 2007.
The lowest-earning fifth of Americans already spend 83% of their income on housing, according to the Department of Labor’s Consumer Spending Survey, and the vast majority of them are renters who bear the brunt of this increase in housing costs. costs.
“Low-income groups are more exposed to housing inflation because they tend to be renters,” Jaravel said. “If you are a homeowner, you benefit from the increase in the value of the home. “
But another reason why price inflation hurts low-income households is that the prices of the goods they buy are rising faster than the prices of the goods bought by the better-off, according to Jaravel’s research.
“In the organic food market, which caters primarily to the wealthy, inflation has been much lower,” Jaravel said.
Jaravel’s research reveals that the price of high-end products is actually going down compared to products in the same category that low-income people are buying. The increase in popularity of these items and, in turn, competition for high income consumers means that high end products become more affordable over time, at least for those who can afford them.
Research by Jaravel, Wimer and Sophie Collyer found that accounting for this “inflation inequality” would have increased the number of Americans living in poverty by 3.8 million in 2018.
The Biden administration’s US bailout package included anti-poverty measures that could help households cope with the rising costs. This includes changes to the food stamp formula to keep up with rising food prices and the expansion of the child tax credit – a policy that now gives families $ 3,600 a year for every child under. six years and $ 3,000 for older children, compared to $ 2,000. Last year. Census Bureau data shows that recipients of this money spent it on needs such as food, utilities, rent, and debt repayment. But those tax credits are now in jeopardy as the Biden administration struggles to save the president’s Build Back Better bill.
Even though the child tax credit may be saved, Wimer said that might not be enough: “The ability of these policies to really help families make ends meet is going to be limited. “