As inflation continues to challenge household budgets across the nation, researchers at the U.S. Federal Reserve say that not everyone has been affected in the same way. This is especially true for lower-income households and older adults living on fixed incomes. The hardship caused by inflation’s erosion in buying power hits households with lower incomes and limited savings the hardest — confirming what TSCL has been telling lawmakers in Congress.
During the Spring 2022 Institute Research Conference, Federal Reserve Governor Lael Brainard said, the consumer price index “has limitations when it comes to representing the true cost of living experienced by different households.” Stating that “it would be useful to have data about consumer inflation broken out by demographic groups… in order to assess the differential effect of inflation across different groups of households.”
Brainard said that lower-income households spend 77% of their income on necessities and have smaller financial cushions, making it harder to adapt when prices rise. For example, higher-income households that might typically purchase a brand-name yogurt may switch to a generic store brand when prices rise. Lower-income households, however, already buy generic brands to get by. When generic prices rise, the choice is to buy less, carry more consumer debt, or go without.
Bottom line, inflation not only means higher prices for many retirees, but also it means less savings, and more debt. Inflation hits savings in two ways. As prices climb, retirees are forced to withdraw more from retirement and savings accounts. In addition, inflation erodes the value of fixed-income investments such as bonds and certificates of deposit. While these investments are often touted as “safer than stocks,” the net return of either type can erode due to inflation.
As prices rise, older households without adequate retirement savings wind up carrying higher amounts of consumer debt — which is generally more expensive than home mortgages and auto loans. What’s more, the Federal Reserve is hiking interest rates to bring down inflation, and that will add to the cost of carrying consumer debt over time.
TSCL continues to advocate for more fair and accurate measures of the inflation experienced by older adults, and a one-time $1,400 stimulus check for Social Security recipients. Please help us put together the legislative priorities that matter most to you and to reset the agenda for Congress! Take our new survey: https://seniorsleague.org/2022-senior-priority-plan/.
Sources: “Variation in the Inflation Experiences of Households,” Lael Brainard Member Board of Governors of the Federal Reserve System, Spring 2022 Institute Research Conference, Minneapolis, MN.