Low-Income American Households Suffer Inflation Shock From Virus

The coronavirus is inflicting a price shock on low income Americans that risks further driving up inequality.

In a study released this week,Bloomberg Economics estimated higher grocery and housing costs for lockdown necessities meant those households whose incomes are in the bottom 10% currently face inflation of 1.5% compared with 1.0% for the top 10% and the official 0.1% overall average recorded in May.

The explanation for the difference lies in how the Covid-19 pandemic has changed consumption patterns by forcing households to buy more food while spending less on transportation or recreational activities.

“In a period of protest and increasing anger about inequality, the differential inflation rate experienced by low- and high-income households is a concern,” said Bloomberg Economics’ Björn van Roye and Tom Orlik.

The suggestion the virus is less disinflationary than many economists believe poses a challenge for the Federal Reserve which is eyeing a slower inflation rate than that experienced by lower earners, who are instead facing a steady erosion of their purchasing power.

“Taken together with concerns about central banks bailing out investors ahead of firms and workers, and the benefits rich, asset-owning households gain from quantitative easing, it adds to the sense that central banks are unintentional contributors to the problem of inequality,” van Roye and Orlik said.

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