Lower-income households were hit hardest by inflation – but still gained purchasing power

Lower-income households were hit hardest by postpandemic inflation, but their wage gains made up for it by the end of 2024, according to new research from the Federal Reserve Bank of Cleveland.

Households in the bottom 40 percent of the income distribution gained roughly 4.5 percentage points of cumulated purchasing power from January 2019 through 2024. That statistic factors in that they spend more of their income on items that saw large price increases during that period, such as food and housing.

Households in the middle 40 percent faced lower inflation but also saw lower wage gains. They also gained about 4.5 percentage points of purchasing power.

The top 20 percent gained about 3.5 percentage points of purchasing power, despite facing the lowest inflation rate of the three groups.

"Despite experiencing disproportionately high inflation during the postpandemic disinflation period, the bottom 40 percent have also experienced high absolute and relative wage growth," the authors write.

Read the Economic Commentary: Did Inflation Affect Households Differently? A Look at the Postpandemic Inflation and Wage Growth Dynamics

More on inflation: The Center for Inflation Research