About a year after the Inflation Reduction Act was signed into law, Americans continue to feel the inflation pinch, as overall annual inflation rose to 3.2 percent in July. But the inflation rate for lower-income Americans is up much more, driven by rising housing costs.
"Rising housing unaffordability is a growing problem," Wayne Winegarden, Senior Fellow and Director of the Center for Medical Economics and Innovation at the Pacific Research Institute, told Washington D.C. Business Daily. "Lower- and middle-income families are caught between a huge surge in interest rates coupled with housing prices that are remaining elevated due to supply shortages."
While overall inflation rose to 3.2 percent, according to data from the Bureau of Labor Statistics (BLS), the steepest rise in July's Consumer Price Index was the cost of shelter, which increased 7.7 percent annually.
A BankRate report highlighted that the cost of shelter is the largest expenditure of the average American household, which is why shelter inflation impacts lower-income families particularly hard.
High shelter costs are driven in large part by the cost of rent. According to the Consumer Price Index Summary, since July 2022, The shelter index accounted for over two-thirds of the total increase in all items less food and energy.
"Growing unaffordability undermines the financial viability of lower-income and middle-income families and prices too many of these families out of the housing market altogether," Winegarden said.
Food inflation also harms low-income households. In a recent Yahoo interview, Walmart CFO John Rainey said that even with decreases in the rate of inflation, food prices are not coming down and it's clear that consumers — even in the middle class — are having to be more frugal about how they purchase food. He said food prices on a two-year basis are up 20 percent.
Inflation is regressive, hurting lower-income people harder. An April 2023 Gallup poll looked at how inflation affects Americans in different income brackets. For Americans earning less than $40,000 per year, 75 percent said inflation was a hardship. By comparison, sixty-five percent of middle-income Americans, those earning up to $100,000 per year, and 45 percent of Americans earning more than $100,000 called inflation a hardship.
Shelter inflation can devastate a family's budget. In 2021, the average U.S. household spent $66,928, which works out to about 76.5% of pre-tax income. Of that amount, $22,624, or nearly 34 percent, was spent on housing, according to a release from the BLS.
A January 2023 Moody's Analytics report found that "the national average rent-to-income (RTI) reached 30% for the first time in our 20+ years of tracking history. Rising mortgage rates caused many households to be priced out from home buying and would-be buyers to remain renters. Apartment demand surged as a result and drove rates sky high. As the disparity between rent growth and income growth widens, Americans' wallets feel financial distress as wage growth trails rent growth."
Shelter inflation hits single mothers hardest. Notably, per the Bureau of Labor Statistics, housing expenditures make up the biggest percentage of annual expenditures for single parents, and single-parent households on average have a lower annual income than two-parent households. Data from Parenting Mode also showed that single mothers, on average bring in significantly less income than single fathers, who are statistically more likely to live with their parents.
Even Pres. Joe Biden recently acknowledged that "Inflation Reduction Act" is a misnomer. "I wish I hadn’t called it that because it has less to do with reducing inflation than it has to do with providing alternatives that generate economic growth,” Biden said on Aug. 10 at a fundraiser in Utah, according to Fortune. Biden added that he still believes that the law is “literally reducing the cost of people being able to meet their basic needs.”