Inflation is a bigger threat to some Americans. Here’s why

“Today, inflation is very high, particularly for food and gasoline. All Americans face higher prices, but the burden is particularly great for households with the most limited resources,” Brainard said at the Research Conference of the Institute of Minneapolis Federal Reserve Spring 2022.

Low-income households spend 77% of their income on needs, she said. That compares with just 31% spent on necessities by higher-income households.

On top of that, low-income households have smaller financial reserves and may not be able to switch to lower-priced alternatives as easily, Brainard said.

If the price of breakfast cereals increases across the board, for example, a higher-income household that used to buy a brand-name product might switch to a store brand to save money. But a household that already buys the store brand doesn’t have the same choice.

Details beyond the data

In the United States, the Consumer Price Index compiled by the Department of Labor and the Personal Consumption Expenditures Price Index tracked by the Bureau of Economic Analysis rose to their highest level in 40 years in February.
The CPI stood at 7.9% for the 12-month period, while the PCE reached 6.4%. The economic impact of the Russian invasion of Ukraine is expected to keep food and energy inflation high throughout this year.
While the numbers are especially useful when tracking price changes over a particular period, they have limitations, said Brainard, who was nominated for Fed vice chairman, one of the most influential economic positions in Washington.

“Those aggregate statistics are very important to us, but they don’t really tell a complete story of how certain communities are experiencing employment or inflation.” she said Tuesday.

Since low-income households also account for a smaller share of total spending, they are underrepresented in the price indices that track average consumer spending.

“It would be useful to have data on consumer inflation broken down by demographic groups, similar to personal income and labor market data, to assess the differential effect of inflation on different groups of households,” Brainard added.

Research from the Bureau of Labor Statistics showed that consumer prices for the lowest-income Americans grew faster than headline inflation between 2003 and 2018. The opposite was true for the top income quartile, meanwhile.

“Inflation disparities between rich and poor grow during bad times,” said David Argente, an assistant professor of economics at Pennsylvania State University, during the panel that followed Brainard’s remarks.

Even though wages have been rising, particularly in the lowest-paying jobs in the leisure, hospitality and retail industries, runaway price hikes need to be reined in, a goal on which both the president and the president agree. of the Fed, Jerome Powell, as President Biden.

Economists worry that if prices continue to rise for too long, consumers will begin to postpone or delay purchases, which could hurt the nation’s economic growth.

The Fed has already started raising interest rates and will continue to do so, Brainard said. He also anticipates that the central bank’s balance sheet will shrink faster than in previous cycles of policy tightening.

The Fed’s next two-day meeting is scheduled for May 3-4.

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