How the Effects of Inflation on Households Varied by Income, 1984 to 2022: Working Paper 2025-04

By Dorian Carloni.

Households at different points in the income distribution consume different bundles of goods and services. Changes in the prices of those goods and services differ from year to year, causing variations (on an annual basis and over longer periods) in the price of a typical consumption bundle purchased by households at different income levels. In this paper, the Congressional Budget Office estimates how the price of households' consumption bundles changed between 1984 and 2022. To do so, CBO used publicly available data from the Consumer Expenditures Survey and imputed household consumption by accounting for all the components of consumption included in the Bureau of Economic Analysis's personal consumption expenditures (PCE) price index. CBO estimates that between 1984 and 2022, changes in the price of household PCE were larger for lower-income households than for higher-income households. On average, the price of household consumption increased by 2.5 percent per year (or 154 percent cumulatively between 1984 and 2022) for households in the bottom fifth of the income distribution and by 2.2 percent per year (or 128 percent cumulatively between 1984 and 2022) for households in the top fifth of the income distribution.