Low-income households are hit hardest by inflation, according to a study by the Federal Reserve Bank of New York. This is because rising food and housing costs make up a large portion of spending.
The results show a reversal of the pattern that was common when consumer prices first surged in his 2021 and early 2022, hitting middle-income Americans the most. is shown.
Who is most affected by inflation?
From early 2021 through June 2022, black, Hispanic, and middle-income households were most affected by price increases. This is because much of their spending was spent on transportation. According to The New blog, transportation costs skyrocketed as used car and gasoline prices at the Fed’s bank soared.
Young and uneducated people are feeling the same impact as they spend more on used cars and gasoline, the blog said.
However, in the last five months, both used car and gasoline prices have fallen. Meanwhile, grocery costs rose 10.4% for the year in December, and rent rose 8.3%. As a result, black, young, low-educated, middle-income Americans now have a smaller inflation gap than the average household, the study says.
How is inflation affecting low-income households?
Instead, 40% of the lowest-income households and Asian Americans see inflation rise by about 0.4 percentage points a year, as food and housing account for the bulk of their spending. This reverses the advantage they previously had in the current episode of inflation.
According to the blog, older consumers and those with a college education are also feeling a greater inflationary effect as they spend more on food and housing.
But according to the New York Fed’s blog, low-income people are most disadvantaged because they have less ability to substitute cheaper goods for more expensive goods and less cash on hand.
The top 20% of households are roughly halfway between the three income groups. They were more affected by rising transportation costs than low-income households but less so than middle-income households. They also spend slightly less on food than the other two groups and less on the low-income group but spend about the same on housing as the middle-income group.
What is the US inflation rate?
According to another New York Fed blog, rural areas have also seen price fluctuations in the past two years. Rural inflation was higher than urban in 2021 and early 2022 due to rising transport costs but is now below the national average.
Headline annual inflation fell to 6.5% in December, from 7.1% the previous month, and hit a 40-year high of 9.1% in June.