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How inflation affects low-income people

MARY LOUISE KELLY, HOST:

Inflation is rising. It does not affect everyone the same way. And economists say rising costs can have an outsize impact on low-income people.

But as NPR's Laurel Wamsley reports, wages at the low end of the scale are going up, too.

LAUREL WAMSLEY, BYLINE: The consumer price index has risen more than 6% over the last year. Low-income families tend to spend a higher share of their income on gas, for instance, than higher-income households. But even if that weren't the case...

JOSH BIVENS: It's still going to cause a lot more stress for lower-income families 'cause they just have so many fewer margins of adjustment to absorb that.

WAMSLEY: That's Josh Bivens, director of research at the left-leaning Economic Policy Institute. He says rising prices in certain categories are more likely to affect low-income people, like food at home rather than restaurants.

BIVENS: And then the really big one is rent. I mean, rent is the one that takes up a far larger percentage of total spending for low-income families than everyone else. It is the ultimate necessity.

WAMSLEY: Rents are expected to rise 10% in the next year, according to the Federal Reserve Bank of New York. Republicans have been pointing the finger at the Biden administration for rising prices and argue that the president's Build Back Better bill will exacerbate inflation.

But Arin Dube, professor of economics at the University of Massachusetts at Amherst, says it's important to look at what's been happening to wages and inflation over the last two years, since just before the pandemic.

ARIN DUBE: Workers at the bottom have come out ahead in that longer span.

WAMSLEY: Over that period, inflation has risen 7%, he says, while wages in the bottom quarter of the pay scale have risen 10%. The time span changes the numbers significantly because inflation rose very little at the start of the pandemic. And in recent months, there's been especially high wage growth at the bottom - a very unusual situation, Dube says.

DUBE: For the last 40 years, wage growth has been particularly anemic at the bottom or the middle, versus much higher at the top.

WAMSLEY: But these figures are, of course, averages. And not everyone's wages are rising.

Bryon Springer is 38 and a veteran of the U.S. Army. He works full time for a small company that repairs laptops and devices in Stillwater, Okla.

BRYON SPRINGER: So my company - they don't believe in pay raises. I've been here for three years, and I'm still making the same $10 dollars an hour from when I started.

WAMSLEY: Springer qualifies for disability from the VA, which gives him an additional $1,700 a month. He tries to set the VA check aside for retirement and savings but says that's hard to do.

SPRINGER: Because inflation eats away at my salary, it goes less and less every month.

WAMSLEY: And the younger generation is particularly worried about housing costs.

Maria Gomez is 19 and a college student here in Washington, D.C. She makes $17 an hour as a manager at a Mexican restaurant - about $2 more than D.C.'s minimum wage. Some of her pay goes to help with the rent on the two-bedroom apartment she shares with her parents. She would love to get her own place. But with the city's high housing costs, it feels like that'll be impossible by the time she graduates.

MARIA GOMEZ: I know that when I get out - like, when I finish my studies - I would want to live by myself. But I think it's going to become incredibly hard by probably the time that I do graduate. Stuff is going to definitely increase in price. And that kind of worries me a lot.

WAMSLEY: And Dube, the economist at UMass, says she might be right to worry.

DUBE: Housing price increases or rent increases tend to get baked in more. And once they rise, they don't reverse themselves very fast, unlike, say, gas prices or food prices.

WAMSLEY: Dube says it's hard to make broad predictions of the future. But if rents start rising high and stay high, it could make for a longer, more uncomfortable period of inflation.

Laurel Wamsley, NPR News, Washington.

(SOUNDBITE OF CLOGS' "5/4") Transcript provided by NPR, Copyright NPR.