Three-quarters of Americans say inflation has outpaced household income

When adjusting for inflation, average hourly earnings rose just 1.5% in September from a year earlier
By Sam Bourgi
•
05 November 2024
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Inflation peaked more than two years ago, but American households are still struggling with unreasonably high costs, making it harder for them to afford basic necessities.

According to the latest national survey from The Wall Street Journal, roughly 75% of respondents said costs for everyday goods and services have outpaced household income over the past year.

More than a third (38%) of respondents said the rising cost of living was having a major impact on household finances. It was the highest level since the Journal began tracking the data three years ago.

An additional 26% of respondents said inflation was having a modest impact on their finances.

While Americans know that inflation has slowed, “Their views of the economy are very much colored by the fact that they remain frustrated by high prices,” said Joanne Hsu, a survey director with the University of Michigan.

Although average hourly earnings have outpaced inflation over the past year, the difference isn’t much when factoring in inflation. Also, certain cost categories, such as shelter and food away from home, continue to outpace real wage growth.

The U.S. Consumer Price Index cooled to a 2.4% annual rate in September, with core prices rising 3.3% over the same period. Both figures were higher than expected.

Although average hourly earnings rose 3.9% annually in September, this figure fell to 1.5% on an inflation-adjusted basis.

The lingering effects of inflation are especially costly for lower-income households that allocate most of their monthly budgets to basic necessities.

Inflation hits poor households the hardest

Research from the Federal Reserve Bank of Dallas concluded that high inflation disproportionally affects low-income households.

Unlike more affluent households, the poor spend more of their income on food, gas, and rent, leaving them with fewer ways to reduce spending when prices rise.

The Census Bureau found that, during the height of the inflation outburst, households with incomes between $25,000 and $35,000 were 19.3 percentage points more likely to be “very stressed” by inflation than households earning between $75,000 and $100,000.

This led Fed Chair Jerome Powell to famously quip, “The burdens of high inflation fall heaviest on those who are least able to bear them.”

Recent research from the London School of Economics tried to dispel the notion that the poor are more burdened by inflation. According to economist Xavier Jaravel, Americans in the bottom 10% by income experienced slightly smaller cost increases than those in higher income brackets.

But the caveat was that high-income earners were disproportionally impacted by rising transportation costs, including gasoline and vehicle prices.

Lower-income households didn’t have to pay hefty transportation costs, but they still paid the price in different ways. Without access to reliable transportation, the poor face longer commutes to work, which adds to their stress.

Jaravel’s research also found that the purchasing power of poor Americans has risen more slowly over time. Because of this, he believes that the Census Bureau underestimates the number of Americans living below the poverty line by 2.3 million people.

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