Economists warn of [price] inflation inequality as poor get slammed by rising prices

'The findings dovetail with an analysis of credit and debit card data by Harvard Business School economist Alberto Cavallo at the start of the pandemic. He showed that low-income consumers experienced price increases that were roughly double those of wealthier ones.'

'The coronavirus pandemic has led to a new era of inflation inequality, economists warn, in which poor households bear the brunt of rising prices.

That’s because a bigger portion of their budget goes toward categories that have spiked in cost. Food is up 6.4% over the past year, for example, while gasoline jumped a whopping 58%. And now many people are facing those higher prices as federal stimulus programs fade away.

“They’re essentially looking to stretch a dollar most days,” said Chris Wimer, co-director of the Center on Poverty & Social Policy at Columbia University. “It’s going to lead to difficult choices between putting gas in the car or paying for your kids’ child care or putting food on the table.”

A recent analysis by the Penn Wharton Budget Model found that low- and middle-income households spent about 7% more in 2021 for the same products they bought in 2020 or in 2019. That translates into about $3,500 for the average household.

By contrast, spending by wealthy households went up by only 6%.

Shift in spending for the wealthy

This disparity is typical during inflationary periods, said Kent Smetters, who directs the Penn Wharton model. But since the 1980s — the last time prices rose this quickly — higher-income households have shifted more of their spending away from goods and toward services. For example, in 2020, food was 12.7% of the budget for the top 5% of households, compared with 16% of the budget for the bottom 20%.

Meanwhile, pandemic-related production disruptions have driven up the costs of commodities that poor households rely on.

“What they happen to be buying has been hit harder by the supply crunch,” Smetters said. “It’s broader-based than in the past.”

The findings dovetail with an analysis of credit and debit card data by Harvard Business School economist Alberto Cavallo at the start of the pandemic. He showed that low-income consumers experienced price increases that were roughly double those of wealthier ones.'

- Economists warn of inflation inequality as poor get slammed by rising prices, December 29, 2021



Context

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Total Debt by Age Group Suggests Millennials and Boomers May Be Overloaded, February 9, 2022

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