Different People, Different Inflation

Varied experiences of inflation

Did you know that if lived in the southeast you were hit harder by inflation than someone who lived in New England? How can that be? Isn’t New England an expensive place to live?

It is.

In New England the median price of housing ranges from $370,000 in Maine to $595,700 in Massachusetts. The median in the southeast, in comparison, ranges from $232,800 in Mississippi to $418,900 in Tennessee, according to Redfin.

But New England also has better wages than the southeast. The minimum wage in most of the south is still $7.25 though, whereas it’s higher in New England. Florida, Virginia, and Washington, DC have higher minimum wages. In Georgia, the wage is even lower ($5.25) for non-covered workers. ^[1]

Shelter inflation and its impact on lower-income households

The most important driver of inflation was the price of shelter. In the southeast home prices increased more, by somewhere between 19.7 and 23.8 percent, depending on where you lived. Where prices were already high, in the Pacific states and to a lesser extent the New England states, inflation didn’t have as big an impact as it did in states with relatively lower housing prices.

By comparison, in New England, house price inflation was 17.1 percent.

Two out of five of the worst hit metropolitan areas were in the southeast: Miami-Fort Lauderdale-West Palm Beach, Florida and Atlanta-Sandy Springs-Roswell, Georgia. Home prices increased from August 2021 to August 2022 by 20.3 percent in the metro Atlanta area, according to the AJC.

Median prices rose from $412,500 to $430,000 from April to August, 2022 (four months), almost 14 percent annualized, even higher than the 8.2 percent inflation rate recorded in June, 2022. Median home prices increased from $405,000 to 475,000 (69 percent!) during the same time period in Miami, according to Redfin.

Fixed income benefits

Consumers on fixed and low incomes were the hardest hit by shelter, especially rent, and food inflation. Food prices went up, but benefits didn’t keep pace. According to Marketplace.org, social security benefits in the US went up with the inflation rate, but those cost-of-living-adjustments (COLA) only affected the next year’s benefits.

Other aid programs, such as TANF (temporary assistance for needy families), WIC (Women, Infants, and Children, a supplemental nutritional program that supports including about half of all infants in the US, and SNAP (Supplemental Nutritional Assistance Program, for low-income families), didn’t keep up with food inflation either.

For example, those who were on social security in 2022, when inflation climbed to 8.2 percent. didn’t get the 8 percent benefit until January 2023. Receiving this benefit after inflation rose brought an extra burden to many households dependent on social security benefits, according to Marketplace.org.

According to the Social Security Administration (ssa.gov) and the Center for Budget and Policy, half of all recipients depend on social security for half their income. Almost 20 percent of beneficiaries rely on social security for 90 percent of their income. The average yearly benefit of $21,204 in 2023, is below the poverty level for a two-person household.

The price of food

Lower-income-households are more likely to experience food-insecurity, not having reliable access to sufficient food, or food of adequate quality to meet their basic needs, and have to pay more for their groceries than the more affluent. According to the Minneapolis Federal Reserve, these households spend 77 percent of their income on necessities, including rent and groceries, as compared to 31 percent for higher-income households (households with over $110,000 in annual income).

Lower-income households also have fewer options when prices are rising. Higher-income households can substitute away from more expensive brands into cheaper alternatives, but if you’re already buying the cheapest brands, what do you substitute into?

For households using WIC and SNAP vouchers the food shortages of the early days of the pandemic were another problem. Since programs restrict the food choices, if items were gone, then these families might not find the food they needed.

Lower-income households may also be paying higher prices for the same goods. More affluent households are more likely to have extra income they would need if they chose to stock extra items, such as nonperishable groceries, when there are sales. Less affluent households are less likely to have this option.

Less affluent households may also face storage issues, since they are more likely to rent. They also earn less so they are less financially resilient. In either case, stocking up isn’t a priority.

Black and Hispanic households also suffer more from inflation than white and Asian households. According to the Census Bureau, while 75% of white households own their homes, 45 percent of Black and 48.6 percent of Hispanic households do. ^[2] This is partly the result of the financial crisis, as rates fell from 2004, when 49.1 percent of Blacks and 49.7 percent of Hispanic owned their homes. As a result, Black and Hispanic households are more susceptible to rent inflation. Rent rose by more than 26 percent throughout the US from 2020 to 2023, according to Rent.com.

Owning a home is one way to battle future inflation, since fixed rate mortgages are good for up to 30 years. This is true no matter where you live.

I’ll take a detour from the inflation series next week to bring you a snapshot of the current state of the economy. Then we’re off to Austin, TX to view the eclipse.

Thank you for reading. Comments and suggestions gratefully welcome.

Nikki

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^[1] The Division of Fair Labor Standards of the Department of Labor defines covered workers as those who workers who work for a company engaged in interstate commerce which makes over $500,000 a year or were covered as of March 31, 1990, or work in institutions involved in medicine or education.

^[2] Kuma Okora, Jeff Horwich, Munseob Lee, Claudia Macalusa, and Felipe Schwartzman from the Minneapolis and Richmond Federal Reserves and UC San Diego in papers published or referenced by the Minneapolis Federal Reserve.