USA TODAY International Edition
Different group hit most by inflation
Study: Lower- income households now feeling greatest pinch as food and housing costs surge
Low- income households are being hit hardest by inflation because surging food and housing costs make up more of their spending, according to a study by the Federal Reserve Bank of New York. The finding marks a reversal of the pattern that prevailed when consumer prices initially spiked in 2021 and early 2022, which showed the most severe impact on middle- income Americans.
Whom does inflation affect most?
From early 2021 to June 2022, Black, Hispanic and middle- income households were hurt most by soaring prices because more of their spending is devoted to transportation, which leaped as the price of used cars and gasoline skyrocketed, according to blogs by the New York Fed.
Young and less educated people felt a similar impact because they, too, spend more on used cars and gas, one blog says.
But in the past five months, prices of used cars and gasoline have declined. Meanwhile, in December, food costs jumped 10.4% annually and rent increased 8.3%. As a result, Black, young, less educated and middle- income Americans are now experiencing a smaller inflation gap compared with the average household, the study says.
How are low- income families affected?
Instead, the bottom 40% of households by income, as well as Asian Americans, are being hit with the highest yearly inflation – by nearly 0.4 of a percentage point – because food and housing make up more of their expenditures. That reverses the advantage they held earlier amid inflation.
Older and college- educated consumers are also feeling a greater inflation impact because they spend more on food and housing costs, the blogs say. But lower- income groups are hampered the most because they’re less able to substitute less expensive goods for pricey items and have fewer cash reserves, the New York Fed blogs say
The top 20% of households are roughly in the middle of the three income groups. They were more affected by rising transportation costs than lower- income people but not as much as middleincome households. And they spend slightly less than the other two groups on food and less than lower- income groups but about the same as middle- income groups on housing.
Lowerincome groups are hampered the most because they’re less able to substitute less expensive goods for pricey items and have fewer cash reserves.
What is the inflation rate?
Rural areas also have felt the ups and downs of price changes the past two years, another NY Fed blog says. Inflation in rural areas was higher than in urban areas in 2021 and early 2022 because of the rise in transportation costs, but it’s now again below the national average Overall annual inflation fell to 6.5% in December from 7.1% the previous month and a 40- year high of 9.1% in June.