How Low- and Moderate-Income Households Are Coping with Inflation

Over the past couple of years, the U.S. experienced persistent levels of inflation, and a vast majority of individuals felt the rise in prices. According to the Census Bureau’s Household Pulse Survey, as of late September 2022, 93.4% of the population had seen prices for goods and services rise in the previous two months. The impacts of inflation: As of mid-June 2023, 88.4% of people had seen prices rise in the previous two months.Specifically, these results are from phase 3.6, week 49, Sept. 14-28, 2022; and phase 3.9, week 58, June 7-19, 2023.

While pervasive, the financial impact of inflation is not borne equally. Depleted purchasing power due to inflation spurs changes to households’ budgets. For some, such as families with relatively low incomes, there aren’t as many options available (PDF) for dealing with fewer financial resources. Ultimately, the decisions they are forced to make can mean forgoing necessities such as food or medical care. These decisions and the general uncertainty regarding future prices can take their toll on individuals and families.

Inflation Is Especially Stressful for Low- and Moderate-Income HouseholdsThe definition of “low and moderate income” varies, often by geographic area. For this article, “low-income” individuals are those who reported a household income less than $50,000 per year. “Moderate-income” individuals are those who reported a household income of at least $50,000 and up to $100,000. (For comparison, in 2019, median household income in the U.S. was $58,600, according to the Federal Reserve Board’s Survey of Consumer Finances.) “High-income” individuals are those with household incomes over $100,000.

The first figure below shows the share of individuals who witnessed rising prices and reported that they were “very” or “moderately” stressed by those increases. As of June 2023, 85.7% of individuals in households that earned less than $50,000 a year reported being significantly stressed. Stress levels from rising prices declined with household income: The highest income group (more than $100,000) had a stress level that was 25.5 percentage points lower than that of the lowest income group. Even so, a majority of the higher-income group (60.2%) were also stressed by rising prices.

Low- and Moderate-Income Households Cut Back on Necessities

When confronted with less purchasing power, individuals relied on different responses to cope. Based on the Household Pulse Survey results in June 2023, a majority of individuals across all household income groups used three strategies:

Beyond those common or shared tactics, there were more nuanced findings based on household income. As a combined group, low- and moderate-income individuals more frequently used the following tactics (in order of prevalence):

Some coping strategies were used significantly more by (but were not limited to) individuals with lower household incomes:

The Effects of High Inflation Could Linger after Prices Stabilize

The figure below shows that, looking ahead, most individuals expect inflation to continue and price levels to increase over the remainder of 2023. Income slightly influenced expectations: A greater share of individuals with low and moderate household incomes—relative to their peers with higher household incomes—expect prices to rise.

Majority of Households “Very” or “Somewhat” Concerned that Inflation Will Continue through 2023

SOURCES: U.S. Census Bureau’s Household Pulse Survey and author’s calculations.

Over the past year, the rate of inflation has trended downward. However, the responses to the Household Pulse Survey show that many individuals expect prices will continue to rise in the year ahead. Unfortunately, the data do not provide any quantitative measure of how much individuals expect prices to rise.

Yet, if prices rise at rates similar to those experienced early in 2023, the preceding analysis suggests that it could be costly for households in ways beyond their diminished purchasing power. Individuals from households with low and moderate incomes have cut back on nutritious food, medical treatment and savings goals; they also have taken on debt and are working more to cope with higher prices. These changes in behavior may have longer-term consequences that outlast this period of high inflation.

Notes

1. Specifically, these results are from phase 3.6, week 49, Sept. 14-28, 2022; and phase 3.9, week 58, June 7-19, 2023.
2. The definition of “low and moderate income” varies, often by geographic area. For this article, “low-income” individuals are those who reported a household income less than $50,000 per year. “Moderate-income” individuals are those who reported a household income of at least $50,000 and up to $100,000. (For comparison, in 2019, median household income in the U.S. was $58,600, according to the Federal Reserve Board’s Survey of Consumer Finances.) “High-income” individuals are those with household incomes over $100,000.