The typical American household must spend an additional $11,434 annually just to maintain the same standard of living they enjoyed in January of 2021, right before inflation soared to 40-year highs, according to a recent analysis of government data.
Such figures underscore the financial squeeze many families continue to face even as the rate of U.S. inflation recedes and the economy by many measures remains strong, with the jobless rate at a two-decade low.
Even so, many Americans say they aren't feeling those gains, and this fall more people reported struggling financially than they did prior to the pandemic, according to CBS News polling. Inflation is the main reason Americans express pessimism about the economy despite its bright points, which also include stronger wage gains in recent years.
"On the edge"
Average hourly pay for workers has increased robust 13.6% since January 2021, although that lags the 17% increase in inflation during the same period, according to government data. The main categories requiring heavier spending for consumers simply to tread water: food, transportation, housing, and energy, which together account for almost 80 cents of every $1 in additional spending, according to the analysis from Republican members of the U.S. Senate Joint Economic Committee.
"Middle- and low-income Americans are struggling to make ends meet," said a representative from the Ludwig Institute for Shared Economic Prosperity (LISEP), a think tank. According to their analysis, the average income needed to cover basic expenses fell short by nearly $14,000 in 2022.
The Impact of Inflation
A recent study by the Joint Economic Committee (JEC) found that the state with the highest increase in expenses compared to 2021 is Colorado, where households need to spend an extra $15,000 per year. On the other hand, Arkansas residents only need to spend about $8,500 to maintain their standard of living.
These differences in costs can be attributed to local economic factors. For example, housing costs in Colorado increased by $267 per month compared to January 2021, while other states experienced smaller increases.
However, a higher cost of living doesn't necessarily lead to financial distress. The Ludwig Institute's research shows that some expensive cities offer the best quality of life for working-class Americans, primarily due to higher incomes.
Lower-income households are hit harder by inflation because they spend a larger portion of their income on basic necessities. Additionally, until recently, wages for lower- and middle-income workers were not keeping up with those of the top earners in the country.
Thanksgiving Dinner Costs Remain High for Lower-Income Americans
A recent analysis has revealed that food costs and basic costs have risen more than other expenses. This means that putting together a Thanksgiving dinner costs the same for both lower- and upper-income Americans. However, for lower-income Americans, the cost of Thanksgiving dinner represents a larger portion of their overall spending.
While overall inflation is cooling down, there are still pockets of inflation that are impacting consumers. For example, fast-food restaurants like McDonald's have seen a 10% increase in the price of a Big Mac compared to December 2020.
Even though inflation is slowing, many consumers may not feel much relief as most prices are not decreasing. This is in addition to the higher prices that were already locked in when price hikes surged in 2022 and earlier this year. The only major exception to this trend is gas prices, which have declined by about 5% in the past year.
