Lower-income workers like Rodriguez have seen some of the fastest wage growth of the pandemic era. But those gains are being eroded by the highest inflation in 40 years, and Rodriguez’s paycheck doesn’t go as far as it used to. A mother of three, Rodriguez has to budget $200 a week for child care and $200 a month for the water bill. The pack of paper towels she buys went from $14 to $18.
“It’s outrageous how much everything has gone up,” Rodriguez said. “I go to the supermarket to buy chicken, and I have to make a decision on what meal I’m going to cook based on the prices. … I’m not going to buy anything luxurious. Everything is more expensive.”
While inflation is rising everywhere, price hikes are particularly devastating to lower-income households with already tight budgets. Nearly all their expenses go to necessities — food, energy, housing — which have seen some of the largest increases at different points over the past year.
Of the 10 categories with the highest levels of pandemic inflation analyzed by The Washington Post, lower earners spent a greater share of their total spending on most of them, from natural gas to beef. (The highest earners outspent the lowest on cars and furniture.)
With their substantial disposable incomes, higher-income households can, of course, more easily absorb the rising cost of necessities. But they are also less exposed to inflation in some key ways, thanks to their spending habits. They spend more of their budget on retirement accounts, mortgages and investments, and less on the necessities, such as energy or groceries, that are squeezing budgets around the country.
Wealthier Americans also have stronger protections shielding them against rising prices. Substantial retirement savings and investments tend to outpace inflation in the long run. They already own their homes on fixed-rate mortgages, and when prices rise they can pocket the equity or charge tenants more. And while prices have also risen for wealthy households, they can cushion against inflation’s bite by dipping into savings, tapping home equity or cutting extra spending — by eating out less, trimming their 401(k) contributions or holding on to a past SUV model a little longer.
Lower-income workers, meanwhile, tend to feel only the negative side of inflation. Their rent goes up. Their heating oil prices go up. Their grocery bills go up. And there’s no room for higher prices in their already stretched budgets. Plus, with stimulus benefits and child-tax credit payments long gone, many have exhausted their financial cushions.
Rodriguez said she’s conscious of every penny she spends. She no longer buys toys for her children. She used to buy fresh fruit at the supermarket but has cut back as fresh produce has become more expensive. Rodriguez said she’s been helped significantly by her union, Unite Here, because she can also pick up groceries from them.
“For low-income Americans, a small change in disposable income is very difficult to cope with,” said Xavier Jaravel, a London School of Economics professor whose publications have helped change how…
Read More News: ‘Survival mode’: Inflation falls hardest on low-income Americans
