Inflation: Universally hated, but unevenly shouldered

Summary

Prices are still rising faster than the pace consistent with the Fed's inflation target, making it difficult for consumers to feel like they are getting any meaningful relief. What's more, inflation continues to affect some consumer groups disproportionately. The Consumer Price Index (CPI) calculates the average change in prices across the average consumption basket. Yet, spending patterns vary widely, leading to significantly different inflation experiences. To determine which groups inflation is weighing on the most, we dust off ourearlier work constructing unique CPIs based on the Consumer Expenditure Survey (CES). Across three demographic groupings, we find:

Income: Lower-income households have faced the strongest inflation not just over the past year, but over the past four years following outsized increases in the cost of essentials like housing, electricity and food at home. Because lower-income consumers devote a larger share of their spend to necessities, the continued elevated rate of inflation in essentials has weighed most on them.

Race/Ethnicity: Asian households have faced the highest rate of inflation over the past year, although on a cumulative basis have seen the least-egregious rise in living costs this cycle. In contrast, inflation has been lowest for Hispanic & Latino households the past year, even as it has been—along with Black households—the steepest over the entire past four-year period.

Age: Rising healthcare costs have led to seniors facing the highest rate of inflation this past year. Meanwhile, Gen-X households have experienced some of the least-severe inflation over the past year and over the cycle as a whole as they tend to devote a relatively high portion of outlays to items that have seen a less-dizzying rate of price increases.

Of course, the difference in the recent rate of inflation and the cumulative rise in living costs across consumer groups does not fully capture the different experiences with price increases. Consumers with less take-home pay—who are more likely to be Hispanic or Latino, Black and/or young—are more constrained in their ability to adjust to higher prices. Real income is also an important factor. The lowest-income households have seen the largest gain in inflation-adjusted incomes over the past four years, but the improvement in real income came in the first two years of the pandemic. Gains have eroded more recently due to not only weaker growth in nominal income, but the stronger rate of inflation lower-income households are facing than those higher up the income spectrum.

Download The Full Special Commentary