Investing 31-12-2022 10:03 16 Views

Inflation heavily tilted against the American middle class in 2022

Runaway inflation in 2022 has proved to be a very heavy burden for American families, particularly in the middle class.

Household budgets have been pushed to the limit even in cases with two gainfully employed income earners.

Throughout the year, the lower and upper-income segments have done relatively well, or at least better than those in the middle tier.

According to the WSJ,

Purchasing power from paychecks fell 2.9% for middle-income households in 2022 compared with 2021, while rising 1.5% for the bottom fifth of households and 1.1% for the top…

Source: WSJ

The bulge in the centre shows that the bulk of middle-class homes was forced to adjust to inflation in excess of 15% during the year, more than double the current reported CPI.

This is primarily due to the items that inflation has been most concentrated in, including food, fuel, real estate and other groceries, which make up the primary expenses for middle-income families.

Source: FRED Database

Executive Director at Flathead Food Bank, Jamie Quinn was alarmed by these developments, stating,

What concerns me is we have more and more working households and middle-class households that we need to serve.

Reported layoffs in the tech sector have only made matters more trying for workers employed in the space.

Higher-income households by and large escaped the worst of the inflationary hit having had a sufficient cushion to guard against rising prices.

Lower-income households found some relief in federal aid and subsidies, as well as the heavy hiring for low-skilled workers earlier this year.

Although they too have a limited ability to absorb higher prices and are seeing their limited savings dwindle.

Danielle DiMartino Booth, former Fed advisor and the CEO of Quill Intelligence stresses that food inflation has become even more problematic as,

The governmental accountability office has found that the Biden administration actually abused its power in increasing the food stamp program by 25% via executive order…

Job insecurity

Going forward, employment is another major concern for middle-class workers with rates set to continue to rise and the government looking to claw back on R&D deductions for small businesses.

As the major engine for job creation, such legislation would only dent the resilience of the middle class even further.

Low-skilled jobs are in danger too, with concerns that much of the uptick in hiring in this space will mean opportunities will begin to dry up. You can also read about this here.

Moreover, the demand impulse of the middle classes will also be impacted in certain segments which will further impact job growth.

Although inflation has been retreating, middle-class baskets have been adversely affected and will continue to see heavy pressure in the coming months.

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