Whether in retail stores or at the pump, consumers across all income levels are paying higher prices for goods and services. The latest Consumer Price Index (CPI) showed that the inflation surged to 8.6% in May, the highest level since 1981. But higher prices aren’t impacting consumers equally.
A recent report from Bank of America (BAC) found that middle income households – those with an average income of $78,000 annually as of 2020 — faced an inflation impact of 9.4% YoY in May. That’s compared to 8.9% YoY for higher-income households (with incomes above $125,000) and 9.3% YoY for lower-income households (with incomes less than $50,000).
The middle class is hurting the most because of their “greater wallet share” in two main industries — motor fuel and automobiles. These industries constituted 12.6% of combined spending among middle-income households, according to BofA.
According to the CPI report, the biggest inflation was seen in motor fuel with prices up nearly 50% YoY in May. Similarly, prices for new and used vehicles were also up a strong 14% YoY.
According to the Consumer Expenditure Survey, middle income households spent 3.8% and 8.8% (12.6% combined) of their total annual expenditure on motor fuel and vehicles, respectively, in 2019. In comparison, these shares were just 2.6% and 8.1% (10.7% combined) for the higher income group and 3.7% and 7.4% (11.1% combined) for the lower income group.
Other areas of strong inflation include public transportation — airfares in particular — and utilities. Although the higher income group spends the biggest share on airlines, their share of total spending on public transportation was just 1.5% in 2019. Meanwhile for utilities, the lower income group spends the biggest wallet share of 8.8%.
“This explains the narrowing gap between low and middle income inflation in recent months as utility prices have picked up noticeably,” the authors wrote.
Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22