Here’s How Much More Inflation Hits Low-Income Families

Number of the Day: The most relevant or interesting figure in personal finance

7.2%

That’s the effective inflation rate for the U.S. households with the lowest income, noticeably higher than the 6.6% rate felt by those with the highest incomes, a new analysis shows.

While the latest headlines showed December’s inflation rate accelerated to a nearly 40-year high of 7%, not everyone experienced that rate, according to Jacob Orchard, a doctoral candidate in economics at the University of California San Diego.

Why? Because even though every household may pay the same price for the items they buy, everyone’s not buying the same things in the same proportions to their budgets. For example, low-income families spend a much greater share of their household income on necessities like gas and groceries. And that makes the same price increases sting harder for them, Orchard wrote in a new analysis published in The Conversation. 

“In times of economic uncertainty and recession, most households tend to hold back on buying luxury goods,” Orchard wrote. “But by and large, people can’t cut down on necessities such as groceries and heating.”

To calculate this inflation inequality, Orchard used data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, which tracks spending patterns, incomes, and demographic characteristics of consumers. The 0.6 percentage point gap he measured for December compares the lowest 20% of income earners to the highest 20%.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

Was this page helpful?
Related Articles