Surging Inflation Could See Millions of American Households Paying $3,500 in Additional Expenses This Year
Surging Inflation Could See Millions of American Households Paying $3,500 in Additional Expenses This Year

By Katabella Roberts

Surging inflation will cost millions of Americans more than $3,000 in additional expenses this year, according to a Penn Wharton University of Pennsylvania Budget Model (PWBM) analysis published on Wednesday.

PWBM, a nonpartisan research-based initiative, estimates that the historic levels of inflation will require the average U.S. household to spend around $3,500 more in 2021 to achieve the same level of consumption of goods and services as in 2019 or 2020.

Moreover, PWBM estimates that lower-income households spend more of their budget on goods and services that have been more impacted by inflation, and will have to spend roughly 7 percent more on such goods and services, while higher-income households will have to spend about 6 percent more.

PWBM came to the estimates by using the Consumer Expenditure Survey (CE), a nationwide household survey conducted by the Bureau of Labor Statistics, and the November 2021 Bureau of Labor Statistics Consumer Price Index (CPI) to investigate how much price changes increase the expenditure for households at different income levels.

They analyzed the increased costs under the assumption that consumption patterns among households would remain the same this year as in 2020 and 2019.

For example, between November 2020 and November 2021, the bottom 20 percent spent $309 more on food, $761 more on energy, $476 more on shelter, $390 on other commodities, and $224 on other services.

Meanwhile, the higher-income households spent an additional $961 on food, $1,824 on energy, $1,607 on shelter, $2,144 on other commodities, and $1,100 on other services.

That could mean, based on 2020 total consumption expenditure data, that the bottom 20 percent of income-earners saw their consumption expenditure increase by 6.8 percent to $2,160 per household, while the top 5 percent saw an increase of 6.1 percent or roughly $7,636 per household. Middle-income earners also saw an increase of 6.8 percent, or roughly $4,351, as per the data.

Shoppers browse in a supermarket in St. Louis, Missouri, on April 4, 2020. (Lawrence Bryant/Reuters)

“Since higher-income groups had a bigger increase in expenditures in all categories, they also saw a bigger increase in total expenditure,” the analysis said. “However, because of variation in the composition of consumption bundles, we find that higher-income households had smaller percentage increases in their total expenditure. Higher-income households spent relatively more on services, which experienced the smallest price increases.”

“On the other hand, lower-income households spent relatively more on energy whose prices had large increases,” the analysis added.

The report comes after the Federal Reserve announced on Dec. 15 that it will end its pandemic-era stimulus sooner than expected amid persistent inflation levels.

The central bank said it will speed up its tapering of bond purchases, bringing the monthly drawdown to $30 billion versus $15 billion announced last month, and suggesting the stimulus will end by March, opening the door for interest rate increases in the first half of 2022.

In a significant shift from the September meeting, officials said they now expect three quarter-point rate boosts in 2022 and a further three rate increases in 2023.

“In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities,” the FOMC statement reads (pdf).

“Beginning in January, the Committee will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgage‑backed securities by at least $20 billion per month,” Fed officials stated.

Fed Chair Jerome Powell told a press conference that the move to phase out bond purchases more rapidly than was previously expected was due to “elevated inflation pressures” and strong labor recovery.

“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses,” Powell said.

Meanwhile, the House voted early on Dec. 15 to raise the debt ceiling by $2.5 trillion to close to $31 trillion until 2023, just in time for the deadline set by the Treasury Department and narrowly avoiding what could have been an economic crisis.

Currently, federal debt is $28.9 trillion, and the latest increase to the debt ceiling is the largest in recent history.

USNN World News (USNN) USNN World News Corporation is a media company consisting of a series of sites specializing in the collection, publication and distribution of public opinion information, local,...