Inflation has created financial problems for Americans. Rising prices take a bite out of everyone’s paycheck, but how much that bite hurts changes depending on a household’s income. Unsurprisingly, those with the least money are the most affected by higher prices.
As you go down on the income scale, necessities like food and housing are a larger portion of household budgets, making these groups especially vulnerable to inflation. This can be seen easily by comparing the expenditures of the different income groups in the Bureau of Labor and Statistics’ Consumer Expenditure Survey’s (CES) data for 2020 and 2023.
Between 2020 and 2023 the poorest 20 percent of households expenditures rose to more than double their annual income. In the highest income quintile this only increased by 6 percentage points, remaining well below their annual income. Over the same period annual expenditures for households earning between $40,000 and $70,000 increased to more than their earnings, and those households decreased contributions to their retirement savings and personal insurance. This will only compound financial problems in the future to survive today.
There are ways the federal and state governments can help to alleviate the financial problems low-income households face when buying food and housing, which are two of the largest parts of every household budget.
Rather than supporting more competition and scale in the grocery industry, the government is actively standing in its way. Currently the largest grocers in America are Walmart, Amazon, and Costco. Kroger is attempting to acquire Albertsons, which would put a fourth competitor into this group. Despite this potential competition that would help reduce prices, the Federal Trade Commission (FTC) and several state Attorneys General are working to prevent it, even after Kroger and Albertsons agreed to sell off hundreds of stores at the FTC’s request.
Instead of prohibiting pro-competitive mergers and acquisitions we could help mitigate the high cost of food by allowing Kroger and Albertsons to proceed. Kroger is already planning to drop prices immediately after the merger goes through. The FTC should focus on legitimate concerns regarding situations with potential local monopolies. Grocery stores operate on thin profit margins but efficiencies of scale are still a potentially effective way to reduce prices. As it stands, competition in the grocery market will decrease if the merger is blocked and Albertsons starts closing its stores.
As important as the price of food is, housing is the largest household expense for any income level. However, some of this expense is artificially imposed. In many places around the country, we have drastically limited the ability to build new homes through restrictions on minimum lot size, accessory dwelling units, onerous permitting requirement, and more. In Washington D.C. for instance, the Brookings Institute found that restrictive zoning is a major constraint to building more housing in the city.
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Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.