Higher Inflation Is Probably Costing You $276 a Month

Inflation accelerated to a 7.5% annual rate in January, the Labor Department said Thursday, reaching a new four-decade high as consumer demand and supply constraints continued to push prices higher. Inflation has been above 5% for the past eight months.

“A lot of people are hurting because of high inflation. $276 a month—that’s a big burden,” said Ryan Sweet, a senior economist at Moody’s Analytics who conducted the analysis. “It really hammers home the point of ‘what is the cost of inflation?’”

Mr. Sweet came up with the figure by comparing what the average household spent under 7.5% inflation versus the amount it would have spent when inflation was 2.1%, the average in 2018 and 2019.

Prices for certain goods and services jumped more than prices for others—which means people who paid for those things probably have suffered a bigger inflation burden than those who didn’t.

Any consumers unlucky enough to have needed a new washing machine might have taken a bigger hit compared with others from inflation, because laundry-equipment prices leapt 12.1% last year.

Research shows that inflation is also squeezing some groups, on average, more than others. The consumer-price index reflects the change in prices for the average basket of spending. But people’s spending baskets vary based on who they are, which influences to some degree their daily needs, where they live, how they get around and what they do for fun.

With prices for different goods and services rising at different rates, those variations influence how big a chunk inflation is eating out of their budgets.

A study by Wells Fargo & Co. economists broke out the impact in fine demographic detail based on December 2021 inflation rates. It uses the spending basket for 2019 and 2020—more recent than that used for CPI—and found that inflation hit 6.5% in December, down from the 7% reported by the Labor Department using the spending basket for the previous two years.

The calculations don’t necessarily capture the whole picture of each demographic group’s financial realities. The economists noted that the way the government measures housing costs means they likely overstated the cost burden for homeowners and understated it for renters. Lower-earning households devote the biggest share of their budgets to rent, which means they probably are experiencing much higher inflation.

Here are some of the study’s findings:

• Middle-class households were squeezed harder than other groups, with prices up 6.7% in December. That is 0.5 percentage points higher than for the lowest and highest income brackets. Transportation costs proved decisive here: Middle-class households spend a bigger share of their budgets than others on gasoline—its price was up nearly 50% in December—and used vehicles. Higher earners tend to buy new cars, prices for which climbed at a slower rate. Just 72% of households in the bottommost earning group owned or leased vehicles in 2020, compared with 90% overall, according to Labor Department data.

• Higher-earning households spent relatively more on dining out and recreation, which rose much less than overall inflation. This group also devotes more spending toward education, in part because, on average, it has more children under 18 years old than other income groups, Labor Department data show.

• Hispanic or Latino households faced inflation of 7.1%, thanks again to a disproportionately large share of spending on used autos and gasoline. That compared with 5.6% for Asian families, who tend to earn more than the average American household.

• Those ages 35-44 saw their costs rise 6.9% in 2021, higher than any other age group, though the rate for younger age groups was just slightly less. Those ages 65 and up experienced 5.8% inflation, in large part because of the share of their spending that went toward healthcare—16%, versus 4% for those under 25. Healthcare services rose just 2.5% in 2021. Younger consumers spent a bigger share of their budgets on cars and gasoline.

Inflation’s ripple effects might affect groups differently, too. An analysis of auto lending by New York Fed economists found that surging auto prices offset the drop in interest rates, translating to an 8% jump in the monthly payment for the typical new auto-loan borrower to $418 in 2021 compared with 2020.

That so far hasn’t resulted in trouble making payments—except among the under-30 crowd. Delinquency rates among this group rose in the fourth quarter, suggesting that “there may be challenges brewing for some younger borrowers,” the economists said.

Write to Gwynn Guilford at [email protected]