The infographic above is the best explanation I’ve found for how people spend money at different income levels, courtesy of FlowingData. In this post I’m going to use the term “inflation” to describe increases in prices.
People at or below median income tend to spend half or more of their incomes on just three categories: housing, food, and transportation. Over the last year housing prices have increased by almost 18%, food prices increased almost 4% (meat by around 15%), gas prices have increased nearly 60%, and used car prices have risen 25%.
As your income rises, you tend to spend more of your money on services. Services, unlike housing, food, and transportation have increased in price considerably less.
In recent elections Democrats have received most of the vote among college educated people in the top 20% of income earners while they have seen their previous leads in lower income groups decline. Frankly put, there just aren’t enough people in the former category to make up for losses in the latter category.
If Democrats don’t want the mid-term elections to be a complete disaster for them, they’d darned well better pay attention to inflation. Being or seeming tone deaf on the subject will not be a good look for them.
Doing a bit of math.
CPI’s rent component (OER) was measured as 3.5% yoy in Nov. OER’s weight in CPI is 40%. It is known OER is a lagging measure and follows closely to up to date measures which show rents have increased 15.2% yoy.
(0.152 – 0.035) * 0.4 = 0.0468 or 4.7%.
In other words, from rent alone, CPI will be above 4.7% next year. Its possible (even likely) that CPI inflation will be at or just above 6.8% — but may print very ugly numbers in the 1st half of the year.
On the other hand; I wouldn’t over interpret inflations political impact (yet). Midterms are typically low turnout affairs; college educated (especially women) in the top 20% of income tend to be the most reliable voters. And I am skeptical Democratic voters in lower income groups (like Hispanics / African Americans) would switch to Republicans over just inflation.
If the heat gets on, there are short term solutions — I saw an op-ed in the Guardian advocate for price controls. I recall Nixon’s price controls were initially very popular. There are already increasing calls for rent control.
I agree. But when you add other factors like law and order it becomes more plausible.
You will also note that I wrote about Nixon’s wage and price controls earlier. They were disastrous. They didn’t control inflation but they did manage to destroy whole industries.
I agree price controls are disastrous (in the long term). But they can be effective (and popular) in the short term.
I am not advocating for price controls, just being realistic on the incentives involved. If its late spring and CPI is measuring 8%, food prices are increasing 10+% yoy, and advisors are telling Biden “temporary” price controls on food would help retain a Senate majority in 22 elections but incur an economic cost in ’23 — its going to be hard to resist.
Is there a reason why inflation would be a bigger concern than jobs, GDP, growth and other economic indicators?
Steve
GDP touches people’s lives only indirectly. Yes, jobs are important, too. They feel price increases every time they go to the store.
Jobs and inflation are interrelated—prices rising risks jobs. Unless you can demand a raise which relatively few workers can these days.
This is a great post. Made better by its timeliness, and the last two comments by steve and Dave.
Let’s not quibble about an exact definition of median income, people making $60-$80K (my daughter, for example) are getting slaughtered. Retirees? Slaughtered. The bottom 25%? Slaughtered. A pox on policymakers.
Joe Biden? Nancy Pelosi? Cabinet members? Fauci? Not slaughtered. And they don’t give a rats ass about Everyman. But the pols do want to inflate away the national debt.
Inflation is the worst curse. A pox on the Fed, the (mostly Democrat) pols and the pundits who discount inflation. Slimy fucks, all.
steve is an idiot, who chooses to adopt standard Dem talking points. He cares not for fixed income people. He cares not for savers. He cares not for the lower income classes with little, or at least rare, upward income mobility. This callous disregard is evidence of profound character deficiency.
All one can do is hope at people wake the fuck up in 2022. Government is not your friend, it is your lord and master.
It’s the middle and working classes who are effected by the corrosive effects of inflation. Those in the higher income categories just pay more without any digressions or negative deviations from their lifestyles. When you see how many people live paycheck to paycheck the kind of rapidly increasing prices simply on staples is very disheartening.
For years we have watched the incomes of the middle and working classes stagnate. The solution offered by Drew and co? Cut taxes for the wealthy. The rich got richer and everyone else stagnated. Now there is suddenly concern for those groups. That’s so sweet! Must be Christmas.
“”And what happened then? Well, in Whoville they say that the Grinch’s small heart grew three sizes that day.”
Bet yours increased at least twice Drew.
Steve