Who in U.S. Gets Hurt Most by Food-Price Inflation?

We know that Wal-Mart and China help the poor by keeping inflationary pressures low on the prices of goods those in the lower income brackets consume. But that benefit is being offset by rising food and energy prices.

In new work, Chicago Fed economist Leslie McGranahan finds the six percent rise in food prices in the U.S. over the last year (July '07 to July '08) has had the largest impact on the poor.

One reason for this is that the poor spend a larger portion of their budget on food than those with higher incomes:

Another reason is that the poor eat out less, and the prices of foods that are consumed at home have risen faster than restaurant prices -- 7.1 percent versus 4.6 percent. Overall, McGranahan finds that those in the bottom 25 percent and those receiving food stamps have been hurt the most. Food-price inflation for the bottom 25 percent is at 6.3 percent compared with 5.8 percent for those in the top 25 percent. For food stamp recipients, food-price inflation is at 6.4 percent. The difference between rich and poor is wider when total inflation is considered: 6.0 percent versus 5.2 percent.

It's worth noting that when food-price inflation is low, poorer households experience less food-price and overall inflation for the same reasons as above.

McGranahan's findings are similar to those by UBS economists in July who found that since 2000, "the lowest-income Americans consumers have seen their price index rise by over 7% more than the highest-income American consumers."

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