Low earners were hit hardest by inflation as savings and pandemic aid dwindle, study finds

cnbc.com:

The lowest-income Americans are facing a financial conundrum: Inflation is eating into a substantial part of their household budgets, while savings built up during the Covid pandemic are starting to dwindle.

Meanwhile, federal supports like monthly payments of the child tax credit and a pause on student loan payments have ended or will soon lapse. And officials have already warned of delayed tax refunds, which low earners generally rely on more than higher-earning families.

Consumer prices in January rose 7.5% from a year earlier, the fastest annual pace in 40 years.

However, households don't feel those price shocks equally.

The lowest-income working households (which earn less than $20,000 a year) faced the highest inflation rate of any income group in 2021, according to an analysis by researchers at the University of Pennsylvania's Wharton School.

These families funneled more of their budgets to necessities like energy and transportation, prices of which grew more rapidly than other goods and services.

Meanwhile, the lowest-paid workers were the beneficiaries of the biggest wage growth last year, as restaurants and other generally lower-paying employers competed for scarce talent.

But higher living costs for the lowest earners were more than triple their extra annual pay — $1,837 versus $578, respectively, according to the Wharton School report published Tuesday.

The dynamic means the lowest earners felt a decline in purchasing power in 2021, unless they were able to supplement earnings with other income like government benefits, according to Alexander Arnon, Zheli He and Xiaoyue Sun, who co-authored the report.

Higher earners fared better. Most households with $20,000 to $100,000 of annual income roughly broke even,