An Update About How Inflation Has Affected Households at Different Income Levels Since 2019
Report
CBO focused on households’ consumption of a bundle of typical goods and services from 2019 to compare purchasing power in 2019 with that in 2023. On average, purchasing power increased, but the effects of inflation varied by income group.
Inflation affects households differently depending on the mix of goods and services that they consume and the income that they have available to pay for that consumption. In this report, the Congressional Budget Office updates its prior work about how inflation and changes in income have affected households at different income levels since 2019. For this report, CBO extended the analysis to compare 2023 with 2019 and incorporated more recent information about prices and incomes that is consistent with the agency’s February 2024 baseline projections.
CBO’s analysis focused on households’ 2019 consumption bundles—that is, baskets of goods and services representing consumption in a typical year before the coronavirus pandemic—to compare households’ purchasing power in 2019 with that in 2023. The agency found that, on average, households’ purchasing power based on those consumption bundles increased over the period but that the effects of inflation varied by income group. Specifically, using two measures of income, CBO found the following:
For households in every quintile (or fifth) of the income distribution, the share of income required to pay for their 2019 consumption bundle decreased, on average, because income grew faster than prices did over that four-year period; and
Households in the top income quintile had the largest decline, on average, in the share of income required to pay for their 2019 consumption bundle over that four-year period.
The changes in those shares reflect the combined effects of inflation on the cost of consumption and changes in the income available to pay for consumption—both of which are important contributors to households’ purchasing decisions. The relative importance of those effects also differs by income. For example, prices of the typical 2019 consumption bundle increased by more for lower-income households than they did for higher-income households. Conversely, incomes available to pay for that consumption bundle increased by more for higher-income households than they did for lower-income households over the same period.
Because CBO focused on 2019 consumption bundles, this analysis does not reflect changes in consumption or incomes resulting from the pandemic. The share of consumer spending devoted to goods increased considerably during the pandemic. That share fell markedly in 2023, and CBO projects that it will continue to decline as a share of total consumption after 2023, as households gradually return to their prepandemic patterns of consumption. In addition, because CBO compared incomes in 2023 with those in 2019, it did not consider the year-to-year income changes that resulted from pandemic relief measures (such as economic impact payments and more generous unemployment insurance) that were introduced starting in 2020 and that expired by 2023.
