(Reuters) – Asian American/Pacific Islander (AAPI) households and those with lower incomes have experienced higher inflation over the past few months as a rise in the costs of food and shelter and a fall in gas prices have altered inflation inequality patterns, a New York Federal Reserve analysis showed on Wednesday.
The findings are a reversal of trends between early 2021 and the summer of 2022 tracked by the regional Fed bank, which showed that Hispanic, Black and middle-income households were most affected over that period by rising inflation due to their spending on transportation, in particular used cars and motor fuel.
The cost of used cars rocketed due to a lack of supply during the coronavirus pandemic, while the price of gasoline began to soar following Russia’s invasion of Ukraine in February 2022 and has been one of the main drivers of an inflation surge which has forced the Fed to rapidly raise interest rates to quash price pressures that raced to 40-year highs.
The price of gasoline in the United States reached a peak in June of last year but has fallen more than 30% since then, while other inflation components, in particular the cost of food and housing, have continued to crimp households.
“As prices in other categories have begun to rise more rapidly, the pattern of inflation inequality is changing with groups that have larger expenditure shares on these components … experiencing higher inflation,” New York Fed economists wrote in a blog post.
Asian American/Pacific Islander households are most impacted by rising housing inflation, the New York Fed said.
To illustrate the changing patterns, the researchers showed that in June 2021, as transportation costs soared, the inflation rate for Hispanic households was more than 1.5 percentage points above the national average.
In December 2022, the inflation disparity for Hispanic households fell to about 0.27 percentage point. Inflation for Black households fell to the national average last month after being more than 1.0 percentage point above it in February last year, while AAPI households, whose inflation rate was below the national average over the past two years, are now at the national average.
Likewise, the data showed middle-income households experienced the highest inflation in 2021. But in December 2022, the bottom 40% by income had the highest year-on-year inflation rate, while the inflation rate for middle-income households was now below the national average.
The same rate of inflation places a greater burden on lower-income households than those with higher incomes in part because of a lower capacity to substitute to less expensive goods and greater liquidity constraints.
In other findings, rural households experienced “considerably higher” inflation than urban households over the past two years, with the U.S. South hardest hit and the U.S. Northeast experiencing lower inflation, again due to differing transportation and housing shares by region, although this gap has narrowed over the past few months, the New York Fed researchers said.
(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)
