Victims of inflation

With inflation now rising faster than at any time in the last four decades, economists are debating which group suffers more from inflation, the poor or the rich. The arguments suggest that the poor are likely to take a beating.

One major factor: The poor is the socioeconomic group that finds it hardest to purchase a home, and real estate seems to be one of the best inflation hedges. U.S. real estate prices have been on a tear for some time. Rents are rising due to rising demand and bottlenecked supply.

And if poorer people are trying to live somewhere relatively prosperous, perhaps to enjoy future economic mobility for themselves and their children, rising rent will eat up an especially large share of their incomes.

Another asset class that has risen in value recently is crypto. There is no good data on who is buying crypto, but it seems likely that the poor are underrepresented here as well, if only because they have less disposable income.

The poor also save less because they have to spend a relatively large percentage of their incomes on necessities. That means they have smaller buffers against many kinds of changes and uncertainties, including those of inflation.

There are some offsetting factors that indicate the poor may have protection from the current rise in inflation. Hotel rooms, new and used cars, rental cars and gasoline have seen especially high increases in their prices, for example, and the poor are less likely to spend on those items.

Even here, however, there is ambiguity. The poor do buy fewer cars than do the wealthy, but they also buy lower-quality cars, and find it harder to postpone a car purchase for a few years if they do not wish to pay a higher price.

The effects of inflation are numerous and complex. It cannot be said definitively that inflation hurts some income groups more than others. Yet it’s clear that, for the poor, inflation is no trivial matter.