Inflation pain varies by income level, other factors

Consumers, overall, are struggling to keep up with the increased cost of living.

The consumer price index rose 2.7% in November on an annual basis, according to a delayed report from the Bureau of Labor Statistics released Thursday. That’s less than expected, but still above the Federal Reserve’s target.

However, the pain of persistent inflation is not shared equally.

“Inflation is a point of stress for everyone, but recent price increases are hitting lower-income households the hardest,” said Taylor Bowley, an economist with Bank of America Institute.

In August, lower-income households’ year-over-year inflation rate was roughly 3%, compared with 2.9% for middle and higher-income households who spend a smaller share of their income on food, energy and shelter, according to a Dec. 11 Bank of America Institute analysis of data from the Federal Reserve Bank of New York.

Personal inflation rates can vary based on the basket of goods specific to your household and other factors, including income or geography. Different income brackets may also have distinct inflation rates based on how much of their spending falls into certain categories, such as food, housing or entertainment.

“Lower-income groups are in many ways affected most by increasing prices,” said Francesco D’Acunto, a professor of finance at Georgetown McDonough’s Psaros Center for Financial Markets and Policy. “The data is very clear about that.”

Largely because lower-income households spend more of their money on necessities such as food, rent and transportation costs, “they are hit more, relative to higher-income groups who spend more on services,” D’Acunto said.

Shelter costs, specifically, have also experienced higher-than-average inflation spikes, according to the Bank of America Institute report. “Rent has been really sticky,” said Bowley, a contributor to the report.

That also means lower-income households are less able to reduce or change their spending habits in the face of higher costs and have limited savings or investment accounts to cushion the blow. “They can’t easily contract their consumption,” D’Acunto said.

With rent, especially, “it is not very easy to shop around,” Bowley added.

How inflation is absorbed further widens the divide, according to D’Acunto. When it comes to covering expenses, “higher-income groups get advantages from using credit cards,” he said, such as cashback and reward points — “whereas lower-income groups tend to have more rollover debt.”

Roughly 175 million consumers have credit cards, according to TransUnion. While some pay off the balance each month, about 60% of credit card users have revolving debt, according to the New York Fed. That means they pay the equivalent of about 20% a year, on average, on the balances they carry from month to month — making their credit cards one of the most expensive ways to borrow money.

“As inflation goes up, that also means [lower-income groups] are accumulating more debt, which is extremely costly,” D’Acunto said.

Bank of America Institute researchers expect inflation to inch even higher next year, “likely leading to further pressure,” according to Bowley.

In an increasingly bifurcated consumer economy, the wealth gap is getting worse, she said: “A K-shaped recovery is not very sustainable.”

At the same time, nearly all households have been slow to adjust their spending habits even as prices rise.

While consumer sentiment nears an all-time low, shoppers continue to spend, especially now during the peak holiday season, other reports show, often relying on credit cards to bridge the gap.

However, that could come at a price in the new year, the experts said.

Roughly one-third, or 32%, of Americans feel their personal finances will get worse in 2026, according to a recent Bankrate survey, notching the highest level of pessimism since 2018. A separate survey by NerdWallet found the same share feel “anxious” or “stressed” about their finances going into 2026.

Those fears may be justified, according to D’Acunto. The risk of continued inflation and growing debt burdens could leave many Americans financially vulnerable in the event of a downturn, he said.

“People are already struggling so much, especially at the lower end of the income distribution,” D’Acunto said. “If an unexpected economic shock hits in 2026, it would be very, very hard.”

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