On December 10, the Bureau of Labor Statistics released the Consumer Price Index (CPI) for November 2021. The CPI measures the average change over time in the prices paid by consumers for goods and services. The overall index went up by 6.8 percent from a year ago, and this level of inflation was last seen in 1982. However, the increases in price were uneven across items in the CPI basket. For example, the price of food rose by 6.1 percent compared to a year ago, while the average energy price jumped by 33.3 percent. There was also a noticeable difference between commodities and services. While the one-year price increases for shelter and other services (excluding energy services and shelter) were 3.8 percent and 2.9 percent respectively, the price increase for commodities (excluding food and energy commodities) was 9.4 percent.1
These price increases do not affect all households in the same way because the consumption baskets of high-income and low-income households differ. In this blog, we use the Consumer Expenditure Survey and the recently released CPI to investigate how much price changes increase the expenditure for households at different income levels. Since we do not yet have data on changing consumption patterns for 2021, we analyze the increased costs under two different assumptions: (1) that consumption patterns remained the same in 2021 as in 2020, and (2) that consumption patterns remained the same in 2021 as in 2019. It seems likely that households in 2021 may follow consumption patterns along some combination of the two, with some pandemic patterns becoming more fixed even as households return to pre-pandemic behavior. Because we hold consumption patterns fixed for this analysis, we do not account for income effects, i.e., any consumption changes due to changing purchasing power, and substitution effects, i.e., any consumption changes due to changing relative prices.
The Consumer Expenditure Survey (CE) is a nationwide household survey conducted by the Bureau of Labor Statistics that provides information on expenditures, income, assets and demographic characteristics of U.S. consumers. We use the Quarterly Interview Survey for 2019 and for 2020 to find out how U.S. households spend their money and how that varies across income groups. We aggregate the survey’s expenditure items into five major categories: food, energy, shelter, commodities less food and energy commodities, and services less energy services and shelter.2 Households are divided into seven income groups where the cutoffs are the 20th, 40th, 60th, 80th, 90th and 95th percentiles of the income distribution.3 Figure 1 shows the average nominal total expenditure by households in each income group in 2019 and 2020. As expected, higher-income groups had relatively higher expenditures in both years. During the pandemic, spending on consumption rose for lower-income households but it decreased for higher-income households. Comparing 2020 spending to 2019 spending, we find that the bottom three income groups increased their total expenditure by $1,499 for the bottom quintile, $518 for the second quintile, and $321 for the middle quintile. At the same time, the top income groups decreased their total expenditure by $168 for the fourth quintile, $3,331 for the 80th to 90th percentile, $4,002 dollars for the 90th to 95th percentile, and $12,175 for the top 5 percent.
The consumption baskets of income groups differ in composition. Figure 2 shows the share of household expenditure on each major category of items by income groups in 2019 and in 2020. Lower-income groups spent relatively more on food, energy, and shelter, while higher-income groups spent relatively more on other commodities and services.
Figure 3 shows the increase in the average expenditure by consumption category and by income groups due to higher prices over the year ended in November 2021 under each of the two assumptions on consumption patterns.4 Due to their higher spending, we find that higher-income groups had a bigger increase in expenditure across all five categories. For example, under the fixed 2020 bundle, the bottom 20 percent saw their expenditure go up by $309 for food, $761 for energy, $476 for shelter, $390 for other commodities, and $224 for other services. For the 2020 bundle, the top 5 percent spent an additional $961 on food, $1,824 on energy, $1,607 on shelter, $2,144 on other commodities, and $1,100 on other services.
Table 1 shows the increase in the average total expenditure by income group, both as dollars and as a percent increase. Since higher-income groups had a bigger increase in expenditures in all categories, they also saw a bigger increase in total expenditure. For example, the bottom 20 percent saw their total expenditure go up by $2,064 (under the fixed 2019 bundle) while the top 5 percent saw an increase of $8,326 (under the fixed 2019 bundle). Assuming the fixed 2020 bundle, these increases change to $2,160 and $7,636 respectively.
However, because of variation in the composition of consumption bundles, we find that higher-income households had smaller percentage increases in their total expenditure. Higher-income households spent relatively more on services, which experienced the smallest price increases. On the other hand, lower-income households spent relatively more on energy whose prices had large increases. Under the fixed 2019 bundle assumption, the bottom 90 percent saw their consumption expenditure go up by between 6.7 percent to 6.9 percent in 2021. The top 5 percent, on the other hand, saw an increase of 6 percent. Under the fixed 2020 bundle assumption, the bottom 90 percent saw increases of 6.7 percent to 6.9 percent while the top 5 percent saw a 6.1 percent increase. Looking at the 60 to 80 percent quintile, those households saw an increased consumption expenditure of $4,441 (for the 2019 bundle) or $4,351 (for the 2020 bundle), representing an increase of 6.8 percent.
| Consumption Bundle | Income Group (%) | Increase in Expenditure ($) | Increase in Expenditure as a share of initial expenditure (%) |
|---|---|---|---|
| 2019 | 0-20 | 2,064 | 6.8 |
| 2019 | 20-40 | 2,879 | 6.9 |
| 2019 | 40-60 | 3,505 | 6.9 |
| 2019 | 60-80 | 4,441 | 6.8 |
| 2019 | 80-90 | 5,533 | 6.7 |
| 2019 | 90-95 | 6,627 | 6.4 |
| 2019 | 95 and Above | 8,326 | 6.0 |
| 2020 | 0-20 | 2,160 | 6.8 |
| 2020 | 20-40 | 2,858 | 6.9 |
| 2020 | 40-60 | 3,468 | 6.9 |
| 2020 | 60-80 | 4,351 | 6.8 |
| 2020 | 80-90 | 5,257 | 6.7 |
| 2020 | 90-95 | 6,164 | 6.3 |
| 2020 | 95 and Above | 7,636 | 6.1 |
This analysis was written by Zheli He and Xiaoyue Sun and directed by Efraim Berkovich. Prepared for the website by Mariko Paulson.
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The Bureau of Labor Statistics does not publish the CPI of services excluding energy services and shelter. We calculate it using the relative importance and the published CPI of services less energy services and those of shelter. ↩
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The shelter category includes rent costs and owners’ equivalent rent. Owners’ equivalent rent is an implied opportunity cost from living in housing owned by the household instead of renting it out. While it is not an actual expenditure on the household’s budget, owners’ equivalent rent represents foregone income whose loss becomes larger as rental costs increase. ↩
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We use total household income before taxes in the CE to define the income groups. ↩
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We use the CPI-U series to be consistent with our fixed consumption bundle assumptions since the chained CPI reweighs consumption bundles monthly. The CPI-U, on the other hand, holds the expenditure weights constant within a two-year span. ↩
Consumption Bundle Income Group (%) Category Expenditure 2019 0-20 Food 4949.93882685564 2019 0-20 Energy 2378.51916024610 2019 0-20 Commodities Less Food And Energy 3848.39553836628 2019 0-20 Services Less Shelter and Energy Services 7838.39695761982 2019 0-20 Shelter 11176.85452181210 2019 20-40 Food 6740.76559598387 2019 20-40 Energy 3422.90204780623 2019 20-40 Commodities Less Food And Energy 5711.20075831583 2019 20-40 Services Less Shelter and Energy Services 10779.58127168250 2019 20-40 Shelter 14328.30385994650 2019 40-60 Food 8030.59650531030 2019 40-60 Energy 3973.91374422892 2019 40-60 Commodities Less Food And Energy 7910.34740958817 2019 40-60 Services Less Shelter and Energy Services 13595.74651926510 2019 40-60 Shelter 16559.83619485150 2019 60-80 Food 9988.79198837675 2019 60-80 Energy 4758.11577987721 2019 60-80 Commodities Less Food And Energy 10946.97023400920 2019 60-80 Services Less Shelter and Energy Services 18435.41506292790 2019 60-80 Shelter 20238.16350433400 2019 80-90 Food 12136.09973514730 2019 80-90 Energy 5624.87203487908 2019 80-90 Commodities Less Food And Energy 14308.82644886890 2019 80-90 Services Less Shelter and Energy Services 24400.66382496690 2019 80-90 Shelter 25373.72345428360 2019 90-95 Food 14150.61183867710 2019 90-95 Energy 6009.86410711723 2019 90-95 Commodities Less Food And Energy 18068.02740183380 2019 90-95 Services Less Shelter and Energy Services 31780.53599012440 2019 90-95 Shelter 32437.21530577160 2019 95 and Above Food 17210.73301662290 2019 95 and Above Energy 6494.83347759289 2019 95 and Above Commodities Less Food And Energy 23710.64720603990 2019 95 and Above Services Less Shelter and Energy Services 46600.47227726740 2019 95 and Above Shelter 42343.97258312390 2020 0-20 Food 5065.54219586118 2020 0-20 Energy 2285.48385577984 2020 0-20 Commodities Less Food And Energy 4155.23027088941 2020 0-20 Services Less Shelter and Energy Services 7780.37322537550 2020 0-20 Shelter 12404.27926734450 2020 20-40 Food 6737.98293774727 2020 20-40 Energy 3024.20078863658 2020 20-40 Commodities Less Food And Energy 5885.04740971949 2020 20-40 Services Less Shelter and Energy Services 10903.87122867540 2020 20-40 Shelter 14949.67156312870 2020 40-60 Food 8032.33911759407 2020 40-60 Energy 3557.97021930770 2020 40-60 Commodities Less Food And Energy 7843.61295494490 2020 40-60 Services Less Shelter and Energy Services 13608.05190502970 2020 40-60 Shelter 17348.98730772470 2020 60-80 Food 9725.44502058763 2020 60-80 Energy 4138.15336753355 2020 60-80 Commodities Less Food And Energy 11190.85224936560 2020 60-80 Services Less Shelter and Energy Services 17941.67177700970 2020 60-80 Shelter 21202.89000843090 2020 80-90 Food 11704.74126897970 2020 80-90 Energy 4548.47509421490 2020 80-90 Commodities Less Food And Energy 15257.04404372970 2020 80-90 Services Less Shelter and Energy Services 21608.64027042200 2020 80-90 Shelter 25394.69162113830 2020 90-95 Food 13652.12014936220 2020 90-95 Energy 5121.39004002116 2020 90-95 Commodities Less Food And Energy 15599.86807212490 2020 90-95 Services Less Shelter and Energy Services 30900.92130690470 2020 90-95 Shelter 33169.52811605050 2020 95 and Above Food 15732.49350690830 2020 95 and Above Energy 5478.04393307198 2020 95 and Above Commodities Less Food And Energy 22848.08612254180 2020 95 and Above Services Less Shelter and Energy Services 38251.48322064920 2020 95 and Above Shelter 41875.37567249750
Consumption Bundle Income Group (%) Category Share (Percentage) 2019 0-20 Food 16.4 2019 0-20 Energy 7.9 2019 0-20 Commodities Less Food And Energy 12.7 2019 0-20 Services Less Shelter and Energy Services 26.0 2019 0-20 Shelter 37.0 2019 20-40 Food 16.4 2019 20-40 Energy 8.4 2019 20-40 Commodities Less Food And Energy 13.9 2019 20-40 Services Less Shelter and Energy Services 26.3 2019 20-40 Shelter 35.0 2019 40-60 Food 16.0 2019 40-60 Energy 7.9 2019 40-60 Commodities Less Food And Energy 15.8 2019 40-60 Services Less Shelter and Energy Services 27.2 2019 40-60 Shelter 33.1 2019 60-80 Food 15.5 2019 60-80 Energy 7.4 2019 60-80 Commodities Less Food And Energy 17.0 2019 60-80 Services Less Shelter and Energy Services 28.6 2019 60-80 Shelter 31.4 2019 80-90 Food 14.8 2019 80-90 Energy 6.9 2019 80-90 Commodities Less Food And Energy 17.5 2019 80-90 Services Less Shelter and Energy Services 29.8 2019 80-90 Shelter 31.0 2019 90-95 Food 13.8 2019 90-95 Energy 5.9 2019 90-95 Commodities Less Food And Energy 17.6 2019 90-95 Services Less Shelter and Energy Services 31.0 2019 90-95 Shelter 31.7 2019 95 and Above Food 12.6 2019 95 and Above Energy 4.8 2019 95 and Above Commodities Less Food And Energy 17.4 2019 95 and Above Services Less Shelter and Energy Services 34.2 2019 95 and Above Shelter 31.1 2020 0-20 Food 16.0 2020 0-20 Energy 7.2 2020 0-20 Commodities Less Food And Energy 13.1 2020 0-20 Services Less Shelter and Energy Services 24.6 2020 0-20 Shelter 39.1 2020 20-40 Food 16.2 2020 20-40 Energy 7.3 2020 20-40 Commodities Less Food And Energy 14.2 2020 20-40 Services Less Shelter and Energy Services 26.3 2020 20-40 Shelter 36.0 2020 40-60 Food 15.9 2020 40-60 Energy 7.1 2020 40-60 Commodities Less Food And Energy 15.6 2020 40-60 Services Less Shelter and Energy Services 27.0 2020 40-60 Shelter 34.4 2020 60-80 Food 15.1 2020 60-80 Energy 6.4 2020 60-80 Commodities Less Food And Energy 17.4 2020 60-80 Services Less Shelter and Energy Services 27.9 2020 60-80 Shelter 33.0 2020 80-90 Food 14.9 2020 80-90 Energy 5.8 2020 80-90 Commodities Less Food And Energy 19.4 2020 80-90 Services Less Shelter and Energy Services 27.5 2020 80-90 Shelter 32.3 2020 90-95 Food 13.9 2020 90-95 Energy 5.2 2020 90-95 Commodities Less Food And Energy 15.8 2020 90-95 Services Less Shelter and Energy Services 31.4 2020 90-95 Shelter 33.7 2020 95 and Above Food 12.7 2020 95 and Above Energy 4.4 2020 95 and Above Commodities Less Food And Energy 18.4 2020 95 and Above Services Less Shelter and Energy Services 30.8 2020 95 and Above Shelter 33.7
Consumption Bundle Income Group (%) Category Increases in Spending 2019 0-20 Food 314 2019 0-20 Energy 717 2019 0-20 Commodities Less Food And Energy 366 2019 0-20 Services Less Shelter and Energy Services 230 2019 0-20 Shelter 437 2019 20-40 Food 427 2019 20-40 Energy 1032 2019 20-40 Commodities Less Food And Energy 543 2019 20-40 Services Less Shelter and Energy Services 316 2019 20-40 Shelter 560 2019 40-60 Food 509 2019 40-60 Energy 1198 2019 40-60 Commodities Less Food And Energy 753 2019 40-60 Services Less Shelter and Energy Services 398 2019 40-60 Shelter 648 2019 60-80 Food 633 2019 60-80 Energy 1435 2019 60-80 Commodities Less Food And Energy 1042 2019 60-80 Services Less Shelter and Energy Services 540 2019 60-80 Shelter 791 2019 80-90 Food 769 2019 80-90 Energy 1696 2019 80-90 Commodities Less Food And Energy 1362 2019 80-90 Services Less Shelter and Energy Services 715 2019 80-90 Shelter 992 2019 90-95 Food 896 2019 90-95 Energy 1812 2019 90-95 Commodities Less Food And Energy 1719 2019 90-95 Services Less Shelter and Energy Services 931 2019 90-95 Shelter 1268 2019 95 and Above Food 1090 2019 95 and Above Energy 1958 2019 95 and Above Commodities Less Food And Energy 2256 2019 95 and Above Services Less Shelter and Energy Services 1365 2019 95 and Above Shelter 1656 2020 0-20 Food 309 2020 0-20 Energy 761 2020 0-20 Commodities Less Food And Energy 390 2020 0-20 Services Less Shelter and Energy Services 224 2020 0-20 Shelter 476 2020 20-40 Food 412 2020 20-40 Energy 1007 2020 20-40 Commodities Less Food And Energy 552 2020 20-40 Services Less Shelter and Energy Services 314 2020 20-40 Shelter 574 2020 40-60 Food 491 2020 40-60 Energy 1184 2020 40-60 Commodities Less Food And Energy 736 2020 40-60 Services Less Shelter and Energy Services 392 2020 40-60 Shelter 666 2020 60-80 Food 594 2020 60-80 Energy 1378 2020 60-80 Commodities Less Food And Energy 1050 2020 60-80 Services Less Shelter and Energy Services 516 2020 60-80 Shelter 813 2020 80-90 Food 715 2020 80-90 Energy 1514 2020 80-90 Commodities Less Food And Energy 1432 2020 80-90 Services Less Shelter and Energy Services 622 2020 80-90 Shelter 974 2020 90-95 Food 834 2020 90-95 Energy 1705 2020 90-95 Commodities Less Food And Energy 1464 2020 90-95 Services Less Shelter and Energy Services 889 2020 90-95 Shelter 1273 2020 95 and Above Food 961 2020 95 and Above Energy 1824 2020 95 and Above Commodities Less Food And Energy 2144 2020 95 and Above Services Less Shelter and Energy Services 1100 2020 95 and Above Shelter 1607