Inflation hit yet another 40-year high in February, with the Bureau of Labor Statistics determining a 7.9% increase in the consumer price index over the past year. However, buried in that figure is the unsavory fact that although inflation is, and in recent months has been, usually somewhat regressive anyway, the burden of recent price spikes has continued to fall on the working class disproportionately.
Although the CPI is a useful figure due to its historical precision, it’s more accurate for comparing price increases between time frames than for determining just how much of a toll inflation is taking on a population at a specific time. The overwhelming majority of the CPI increase continues to be due to food and energy, factors that comprise a much greater share of the budget of lower-income households than wealthier ones.
Think of it like this: Let’s say an upper-middle-class household of two white-collar workers has $8,000 in disposable income each month. Their mortgage payments, grocery bill, and transportation-related costs may only use less than half of that, leaving thousands each month that can be allocated to savings, investments, or other leisure spending.
That’s not the case for those who earn lower wages. Rent, groceries, and gas in the same market may cost marginally less for a lower-income household that elects to shop at Giant instead of Whole Foods, use the cheapest grade of gas they can find on GasBuddy, and reside in a much smaller home. But after a certain point, the demand for shelter, food, and transportation is highly inelastic. That is, the parents’ commute to work simply cannot require fewer gallons of gas per week. The children simply cannot consume fewer calories of protein.
As the lockdowns and supply chain disruptions of the pandemic continue to recede, the core CPI, that is the CPI less food and energy costs, continues to level off, with February’s actually slightly slipping from the omicron-affected measures of the prior two months. But the food and energy price surges show no signs of abating. And the CPI is an even less useful measure for rental markets, which are highly localized, and mortgages, which are overdue for a massive interest rate increase in accordance with monetary tightening by the Fed.
All of this is to say that if you feel your real monthly budget has decreased by much more than some 8% in the last year despite your best efforts to shop more discriminately, you’re not crazy. Inflation is regressive by design, but this bout is even more so than usual.
