And because lower-income workers are more likely to be black and Hispanic — their average weekly income for full-time jobs was significantly lower than those of white and Asian Americans in the last quarter of 2021, according to the Bureau of Labor Statistics — they are also more likely to bear the brunt of inflation. .
With critics of Biden’s $1.7 billion social spending package warning that it could drive up inflation, the fact that price hikes are hitting hard the very groups the White House said the bill would help — black workers, Hispanic workers and low-income workers — makes the administration Only the traffic situation is more difficult.
“When you’re on a lower income, you have fewer options, fewer alternatives to get the goods and services you need,” said Andre Berry, a fellow at the Brookings Institution. “Blacks need affordable goods and services.”
For weeks, Democratic Senator Joe Manchin, a moderate Democrat whose support is crucial to the law’s passage, has expressed concerns about the legislation’s impact on inflation.
The situation is also a mystery for the Federal Reserve. While raising interest rates may help tame inflation, it could also put pressure on employment while the economy remains on an uncertain basis.
The Labor Department reported Friday that its consumer price index rose 6.8 percent in November of 2020 — the highest level since 1982. And while some costs have started to fall, four in 10 Americans said last month that inflation was their biggest economic concern. , more than any other issue, according to an NPR/Marist poll.
The White House understands the danger higher prices pose not only to the “Build Back Better” pass, but also to the president’s approval ratings. Biden moved on Friday to downplay the Labor Department report, stressing in a statement that more recent data reveals a “price and cost increase.”[s] It’s slowing down, but not as fast as we like.”
Indeed, Biden said, inflation “underscores the importance of Congress acting without delay to pass my plan to build back better.” He asserted that the legislation would save families money “while alleviating long-term inflationary pressures on our economy”.
Conservative economists say Biden’s position is out of reach.
“They’re stuck in a corner: they want to build back better, and that obviously will put more upward pressure on inflation,” said Curtis Debye, chief economist at the US Chamber of Commerce. “It’s tough messages. It’s easy for them to downplay it and put it in the background, but it’s issue #1 on everyone’s minds.”
Other experts object that although the BBB may increase inflation in the short term, these effects will likely wear off soon — and low-income workers will be more economically secure than they were before.
“Inflation may pick up in the near term: this time next year, 2023, 2024,” said Mark Zandi, chief economist at Moody’s Analytics. “But in the long run, it will probably bring down inflation a little bit.”
“The inflation that lower-income families will face will be lower because their cost of living is subsidized in legislation, with lower childcare costs, lower education costs, lower housing costs, and lower aged care costs,” Zandi said.
Inflation more affects lower-income families for a variety of reasons beyond their earning power. As prices rise, they are less able to search for cheaper items, because they are already buying the cheapest products possible and because they have less freedom to visit a different store to look for sales or use coupons, according to Argente research.
Moreover, the cost of goods sold for high-income workers often increases less because there is a high demand for it, which enables competition to drive prices down.
Since black and Hispanic families are significantly less affluent than white families, these problems are exacerbated for them.
Argent cautions that this research is all based on past economic data, and it may take some time until the effects of Covid-19 on inflation inequality are fully recognized. But he notes that this could be exacerbated in part by the proliferation of online shopping, where deals can be made on many items.
“There are some families who do not have access to online purchases,” he said. As a result, it may be more difficult for them to purchase certain types of goods compared to families who have access to online shopping. “
Some economists say the blow to lower-income families from the current bout of inflation may be lessened by recent wage growth. Wages for lower-income workers increased more than for their higher-paid counterparts.
“Lower class wages have risen the most,” said William Sprigs, chief economist at the AFL-CIO. “So, if anything, the real wages of the people at the bottom were doing better than the real wages of the people in the middle.”
The latest inflation numbers are expected to put more pressure on the Federal Reserve to withdraw its support for the economy and possibly prepare to raise interest rates as soon as March. The central bank is likely to discuss the move – which indicates prioritizing anti-inflation over maximizing employment – at its December 14-15 meeting.
“They are walking a very fine line not to disrupt the recovery and not to disrupt the fragile economy,” DuBay said. “The economy is doing well, but we are still in a pandemic, so it can still be pushed back. They don’t want to cause that.”
The unemployment rates for black Americans and Hispanic Americans were 6.7 and 5.2 percent, respectively, in November, according to the Bureau of Labor Statistics, compared to 3.7 percent overall.
“Jerome Powell has a very big challenge if he focuses on black people in his next actions,” Berry said. “When the Fed raises rates, that obviously competes with the effort to get full employment.”
“Blacks, low-income people, need both: We need to keep striving for full employment because black unemployment rates are higher than the total, but also low-income people, especially black people, need affordable goods and services,” Berry said.
Spriggs warns that prioritizing inflation over employment can backfire, and hurt workers in a different way.
“The way that inflation goes down is that demand goes down. The way you lower demand is you get people out of work, you cut their income,” Spriggs said. If you’re one of those people who’s decided, “The rest of us need lower rates. You need to lose your job,” then it’s like, ‘loser, loser, loser.’
“What scares me about all this drumbeats about inflation is not acknowledging that this is how inflation is fought.”