Who does inflation hurt most? From 2021 to 2022, the ground shifted.
When inflation began ravaging Americans’ pocketbooks and wallets in early 2021, it was middle-income Americans who mostly bore the brunt. That’s because inflation then was in part driven by gas costs and a shortage of used cars, which led to higher prices. Americans with low incomes, while hurt, were affected slightly less.
Last year, that changed, according to a new report by the New York Fed.
In 2022, the price of both gasoline and used cars began declining, while the cost of food and housing skyrocketed, even beyond 2021 levels. Today, the rate of inflation is slowing, but high costs of food and soaring rents (caused in part by an ever-dwindling supply of affordable housing stock) have shifted the focus of where inflation is most keenly felt and by whom.
And now it is Americans in the lowest 40 percent income category who are feeling it. That’s because this group of Americans spends a larger proportion of their incomes on food and rent, and a smaller proportion on gas and used cars.
Gas prices reached their peak in the U.S. in June 2022, but since have fallen 30 percent. But food prices and the cost of housing, rent in particular, continue to rise. “As prices in other categories have begun to rise more rapidly, the pattern of inflation inequality is changing with groups that have larger expenditure shares on these components…experiencing higher inflation,” New York Fed economists wrote in a blog post.
Writes Axios: “The data suggest that inflation is shifting from an annoyance for middle-class earners to a more severe burden on poorer families that can least afford higher prices.”
The New York Fed’s analysis showed that middle-income households experienced the highest inflation rate in 2021. But by December 2022, households in the bottom 40 percent income bracket had the highest inflation rate, compared to the previous year. Meanwhile, the inflation rate for middle income households ($50,000 to $150,000) had fallen to below the national average.
Lower-income people of color were hit particularly hard last year. One group hardest hit was Asian American/Pacific Islander households, who were especially affected by rising housing inflation.
The report’s findings reaffirm the importance of defending programs like SNAP. They point out, once again, how an expanded Earned Income Tax Credit and Child Tax Credit would help those most in need.
And they bear out the importance of taking steps to rein in housing costs. On Wednesday, the Biden Administration announced new steps to do just that.
“Under pressure to address the nation’s soaring housing costs, the Biden Administration on Wednesday announced significant new actions to protect tenants and make renting more affordable,” the Washington Post reported.
Steps the White House is taking include instructing multiple federal agencies to gather information on unfair housing practices; launching a “Blueprint for a Renters’ Bill of Rights” that offers clear guidelines to help renters stay in affordable housing; and launching a call to action to encourage housing providers and local and state governments to do more to help renters.
Housing advocates, while largely supporting the Administration’s actions, said America’s housing crisis is not something the Biden Administration can solve by itself.
“The hard truth is that administrative action on its own can’t resolve the housing crisis that we’re in,” Diane Yentel, President and CEO of the National Low Income Housing Coalition told the Post. “It’s going to require major action from Congress, and unfortunately the opportunity we had through Build Back Better passed by…We are clear-eyed about the limitations of administrative actions but are still pushing to do all we can now. The need is greater than ever.”