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The four-dollar gas and the five-dollar hamburger are tightening Tanya Byron’s pocket. But it’s the rent that really hurts.
“It’s pretty depressing,” the Jacksonville, Florida, travel agent says, sitting in the small dining room that doubles as her home office. “I make $42,000 a year and can barely afford a one-bedroom apartment.”
Rising costs of housing, food and other necessities are big drivers of inflation and hit low-income Americans especially hard, posing a growing challenge to President Biden and the nation’s top economic policymakers.
A Wednesday report from the Labor Department shows that consumer prices in April were 8.3% higher than a year earlier. That’s a modest decline from March’s inflation rate of 8.5%, thanks in part to a short-lived drop in gasoline prices last month. Since then, gasoline prices have recovered to a record level, albeit unadjusted for inflation.
But food and housing costs remained elevated, according to the latest inflation report. In Jacksonville, apartment rents have increased 23% in the last year, according to Realtor.com.
“I feel like there should be some kind of cap on the percentage a landlord can raise the rent if they haven’t done anything,” says Byron, whose own apartment dates from another period of sky-high prices.
“It was built in 1976 and they haven’t updated anything,” she says. “The doors and baseboards are painted brown. It’s clean, but it’s very basic.”
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concern for the future
Byron was hoping to move into a condo now, but with home prices rising rapidly and mortgage rates topping 5.25%, buying a home feels out of reach.
“I’m really worried about the future,” says Byron. “What’s going to happen to people who make $15 and $18 an hour and single mothers and people who have mouths to feed? It scares me.”
When inflation is high, everyone pays the price, but research suggests low-income families suffer the most.
“Usually food, gas and housing account for a larger share of total spending for low-income households than for higher-income households,” says Dan Sichel, an economist at Wellesley College.
There is another critical factor, adds Sichel.
Those with lower incomes tend to pay higher prices, even for similar items. They may not be able to travel to cheaper stores, take advantage of seasonal discounts, or “get the giant pack of toilet paper to keep in the basement when it’s on sale.”
Sichel chaired a committee of the National Academies of Sciences, Engineering and Medicine that recommended that the Department of Labor try to reflect those realities as part of an effort to modernize the way the government measures the cost of living.
“What people pay for similar items in different stores is very important in understanding the inequality of inflation,” says Sichel.
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The committee recommended other ways to improve how the government measures inflation, including more frequent updates to the basket of goods and services used to track prices.
Right now, the basket is adjusted only once every two years. That may miss big shifts in consumption patterns like those that occurred during the coronavirus pandemic, when Americans suddenly bought fewer movie tickets but more streaming subscriptions, for example.
Any effort to update the measure of inflation is likely to attract a great deal of attention at a time when the consumer price index is front page news.
“I think the stakes are high right now,” says Sichel.
Biden, whose approval ratings have fallen as prices rise, calls fighting inflation his top domestic priority.
“I know families across America are hurting,” Biden said Tuesday. “I know you have to be frustrated. I know. I can taste it.”
The president blamed supply chain groans related to the pandemic and the war in Ukraine as the main causes of inflation.
While the administration has tried to offset price increases with oil releases from the Strategic Petroleum Reserve and other moves, Biden says the Federal Reserve has a major role to play in bringing inflation down.
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The Fed is fighting inflation
Chris Waller, a member of the Fed’s board of directors, agrees.
“Inflation is too high and my job is to bring it down,” Waller said Tuesday at the Economic Club of Minnesota. “We have to raise [interest] tariffs We have to cool demand and try to lower inflationary pressures. If we get some help from supply chain resolutions, that’s great, but I’m not counting on it.”
The Fed raised interest rates by half a percentage point last week and signaled that two more jumbo rate hikes are likely in June and July.
Waller and his Fed colleagues argue that the economy and labor market are strong enough to withstand a rise in interest rates without a sharp rise in unemployment.
But Waller admits that if layoffs happen, they are likely to hurt the very people who are already hardest hit by rising prices.
“We are trying to reduce the inflation tax for everyone, but there is a small part of society that may bear the brunt of losing their jobs,” says Waller. “There’s no magic formula in a textbook that tells you how to do it. You have to take a chance and see where it goes.”