Inflation wrecks purchasing power for low-income communities

The most obvious impact of inflation is that it hurts your purchasing power. If you can’t buy as many goods and services as you did before inflation, your quality of living will eventually diminish.

“Essentials will take precedence over non-essentials as everyone tries to stretch the purchase side of their budget,” says Angelo DeCandia, a professor of business at Touro University. “Think more money spent on groceries and gasoline, and less spent on travel and entertainment.”

Less purchasing power really hurts families that were already experiencing financial hardship, says Dan North, senior economist at trade credit insurer Allianz Trade.

“Inflation hits the lowest-income families harder because items such as gasoline and food make up a much larger portion of their budgets, leaving less for discretionary spending,” North says. “So, for example, where they used to have money to go out to dinner, even fast food, or [go to the] the movies once a month, now they won’t at all.”

And if you’re already stretching your budget to the limit, it’s harder to make adjustments to reduce your costs. For instance, if you’re already using the cheapest toilet paper or paper towels on the shelf, you can’t trade down.

In fact, a 2021 study from the University of Pennsylvania found that lower-income households had to spend about 7% more on goods and services last year compared to 2019 or 2020, while higher-income households had to spend 6% more. Remember, the annual rate of inflation for 2021 was 4.7%.