Middle-class Americans were the hardest hit group by skyrocketing inflation in 2022, Congressional Budget Office (CBO) says.
Inflation has cut into the finances of the middle class more than that of low- and high-income households, according to a CBO report from Sept. 22.
Annual U.S. inflation rates have hovered in around the low- to mid-8 percent range since the summer began, with the highest rates in roughly 40 years.
There have been massive price increases for the three key household expenditures this year—food, housing, and energy—much of it due to supply chain problems.
The CBO report analyzed the average purchase of goods and services in each fifth of U.S. households according to income distribution in 2019, before the pandemic hit normal spending rates.
Households in the second, middle, and fourth income brackets, which together make up the American middle class, have witnessed the value of their overall income decline in value over the past year.
Meanwhile, the average share of income relative to expenditures for Americans in the lowest and highest quintiles has been less skewed in 2022.
The report reflected that prices for middle-income households grew faster than their earnings this year.
Lower- and upper-class families have seen their incomes grow faster than prices.
The CBO report also saw that spending habits among income levels between 2019 and 2022 reversed. Lower-income households saw their share of income needed to make purchases in 2019 go up, while other income brackets saw a decline.
The Fed and American Households
The Federal Reserve has been trying to lower inflation by aggressively raising interest rates in order to reach its inflation target of 2 percent.
The central bank hiked its benchmark rate by 75 basis points for the third time in a row to 3 to 3.25 percent at its policy meeting earlier this week to levels not seen since early 2008.
Most economists expect the Fed to raise rates to between 4 and 4.5 percent by the end of this year through sizable rate increases at its next policy meetings in November and December.
However, an increase in interest rates will likely slow economic growth, cause the housing market to tumble, and bring higher unemployment.
The average household was spending $460 more in August for the exact same items as last year, according Ryan Sweet, senior director of economic research at Moody’s Analytics to The Wall Street Journal.
“That’s a big burden, particularly on lower-income households. That’s one reason the Fed is laser-focused on getting inflation down,” said Sweet.
“They have a long way to go before they get it back down to where they want it to be, but we’ve seen small steps in the right direction.”
Fed Chairman Jerome Powell admitted in late August that while rate increases would bring down inflation, “they will also bring some pain to households and businesses.”
So far, unemployment apparently remains relatively low, according to government statistics, but there are signs of it weakening and many have dropped out of the workforce altogether.
Workers have seen some benefits from a tight labor market, as many employers are desperate to fill hundreds of thousands of existing open positions.
Lower-income workers have benefitted more, as many of the positions are in less skilled positions.
The U.S. economy has added an average of 380,000 jobs per month over the past six months, far above what the Fed chair had expected.
“We certainly haven’t given up the idea that we can have a relatively modest increase in unemployment. Nonetheless, we need to complete this task,” said Powell, who believes that the hot labor market is perpetuating inflation.
From The Epoch Times