In 2022, the financial burden of inflation shifted from middle-income households to low-income families, as data released by the New York Fed revealed. This change in who is hit hardest by rising prices has far-reaching implications for economics and politics alike.
Researchers Rajashri Chakrabarti, Dan Garcia, and Maxim Pinkovskiy studied how different types of consumers with vastly different spending patterns were affected by inflation. It became clear that middle-income Americans – those making between around $50,000 and $150,000 – felt the most pressure from higher prices in the year 2021. This was partly due to their larger expenditures on used cars and fuel compared to other income brackets.
However, a shift has occurred over the course of 2022 that has changed who feels the brunt of increasing costs. The cost of rent and groceries, which low-income Americans spend most of their income on, have risen while gasoline and used car prices have dropped. As a result, those in the bottom 40% of earners now bear the heaviest weight regarding inflation rates – some 0.3 percentage points higher than average. This same pattern can be seen across other demographics as well: rural Americans were feeling an inflation rate two points above average at this time last year but are now below average. Black and Hispanic households had an inflation rate one percentage point higher than overall figures but are now roughly even. Those without a college education or led by someone 25 or younger experienced elevated rates but have since evened out with the rest of America.
At its root, this shift in rising prices away from wealthier groups toward poorer ones raises significant implications for economic policymaking. Low-income groups are particularly vulnerable to being driven further into poverty when faced with high living costs that leave little room for savings or investments – let alone opportunities to break out of that cycle through education or entrepreneurship initiatives that require extra resources to finance them. It has become increasingly important then for government intervention to help mitigate these pressures while also finding ways to help alleviate poverty through targeted support structures such as universal basic income schemes or tax incentives where possible.
Inflation may have been fading as a whole lately. Still, these most financially vulnerable segments of society bear its weight heaviest – something policymakers must keep in mind going forward if we hope to see real improvements in poverty reduction efforts worldwide.
