Americans Should Budget an Extra $5,200 This Year to Cover Rising Prices
Source: Business Insider
- Inflation will cost the average US household an extra $5,200, Bloomberg economists said.
- About $2,200 of that inflation tax will come from pricier food and energy, they added.
The red-hot inflation expected to last throughout the year will leave the average US household spending $5,200 more compared to the year prior, Bloomberg economists Andrew Husby and Anna Wong said in a Tuesday article. That boils down to an extra $433 per month on the same goods and services as last year.
Strong wage growth and excess savings from earlier in the pandemic will help soften the blow, but looming economic trends stand to worsen the inflation problem over the next several months, the team said.
“Accelerated depletion of savings will increase the urgency for those staying on the sidelines to join the labor force, and the resulting increase in labor supply will likely dampen wage growth,” they said. In other words, as people spend their built-up savings, they’ll need to go back to work, and employers won’t have to pay as much to lure them back.
The estimate offers yet another bleak characterization of this year’s sky-high inflation. Closely-watched inflation gauges like the Consumer Price Index have already shown prices soaring at the fastest pace since 1982. Inflation-adjusted wage growth was negative for most US workers last year, meaning their buying power weakened despite salaries rising at a historic pace. The economy is healing, but skyrocketing prices are making the recovery painful for nearly all Americans.
Food and energy costs, which includes gasoline and home heating, account for $2,200 of 2022’s inflation, the economists said. That’s poised to hit low-income Americans the hardest. Such households have the least savings to cushion against rising prices, and wage growth is expected to slow through the year as more people return to the job hunt. Even if the cohort’s average wages climb a healthy 10% in 2022, food and energy inflation could fully offset their pay growth, the Bloomberg economists said.
Recent world events could drive the projected price tag even higher. Russia’s invasion of Ukraine has already lifted food and energy prices and thrown new headwinds at global supply chains. If the conflict lingers, it could further stoke inflation.
Bloomberg estimates, in a downside scenario, prices for crude oil could climb as high as $160 per barrel. Separate estimates suggest that would lift the US average gas price above $5 per gallon. The nationwide average stood at $4.24 as of Tuesday, according to AAA, a level that’s already near record highs.