"A new wave of inflation inequality has become evident during the Coronavirus pandemic, in which low-income families face the brunt of increasing prices." -- Levi reddy, 7th grade
The American working class has always struggled in the world of housing, health-care and fluctuating wages, but a new analysis has shown that struggle extending to formerly affordable goods. Because of the supply chain crisis, there has been a price surge for cheap mass-produced items available via internet retailers, big-box stores and imports from abroad. This trend, though on a large scale is almost unnoticeable, means that wealthy households have a lower inflation rate for better-quality products than the average lower-income household has for worse alternatives. Such, it has been dubbed “inflation inequality."
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 2019. On the other end of the spectrum, spending by wealthy households only increased by 6%. Bigger portions of the poor’s budget goes toward categories that have spiked in cost, including food and gasoline. This means that people end up shelling out a couple dollars more for everything. And now, many are finally dealing with these higher prices as unemployment checks have been taken away.
Using government and scanner data from retail outlets, Xavier Jaravel of the London School of Economics found that in recent years, the prices of the products bought by the bottom income quintile increased faster than the prices of the products bought by the top income quintile. An income quintile is a measure of socioeconomic status that divides the population into 5 income groups depending on their earnings. From 2018 to 2020, the bottom income quintile made between 13,000 to 15,000 on average each year. The top income quintile made between 233,000 and 253,000 every year. Production disruptions, like the supply chain crisis, caused by the pandemic worsened this already growing inflation rate.
Jaravel described a reason behind this finding: Rising funds in the wealthy’s bank accounts means more disposable income. This in turn creates a market incentive for producers to cater to the needs of the wealthy instead of the poor. Each business wants the most customers so, to encourage spending, low costs emerge. With few firms providing for low-income customers, there is less competition, less product improvement and choice, and increased prices.
Inflation inequality has not filtered into government poverty calculations, or at least not yet. Economists approximated that about 3 million more people would qualify as living in poverty in the United States 2018 poverty estimation, and 836,000 people would count as those in deep poverty, if their incomes were adjusted for the inflation rates they experience, according to the Atlantic’s article ‘Inflation Inequality Makes Life Harder for Workers’. The United States relies heavily on both poverty and inflation calculations to distribute benefits and federal help, and without accurate inflation rates combined into government data, many who deserve financial assistance do or will not receive any.
Not only are the poor struggling with dangerously wide inflation inequality and the increase of price everywhere, but this new data also shows that the percentage of people in poverty is much higher than believed, and lacking government aid. Brought to attention, these problems will hopefully begin to be solved, but there is always more people can do.