Consumers as a whole are struggling to keep up with the rising cost of living.
The Consumer Price Index rose an annualized 2.7% in November, according to a belated report released Thursday by the Bureau of Labor Statistics. This is lower than expected, but still above the Federal Reserve’s target.
But the pain of persistent inflation is not shared equally.
“Inflation is a stress point for everyone, but low-income households have been hit hardest by recent price increases,” said Taylor Bowley, an economist at the Bank of America Research Institute.
In August, year-over-year inflation for low-income households was about 3%, compared with 2.9% for middle- and high-income households that do not spend a portion of their income on food, energy or housing, according to a Dec. 11 analysis of New York Fed data by the Bank of America Research Institute.
Personal inflation rates can vary based on a household’s unique basket of goods and other factors such as income and geography. Different income brackets may also experience different inflation rates based on how much of their spending falls into certain categories, such as food, housing, and entertainment.
Low-income households cannot “easily contract” for spending.
“Low-income groups are the ones most affected in many ways by rising prices,” said Francesco D’Accunto, a finance professor at Georgetown McDonough University’s Psaros Center for Financial Markets and Policy. “The data is very clear about that.”
Mainly because low-income households spend more money on necessities such as food, rent and transportation, “they are being hit harder compared to higher-income households who spend more on services,” Dakunto said.
Shelter costs, in particular, have also experienced an above-average spike in inflation, according to a report from the Bank of America Research Institute. “Rent prices are very depressed,” said Mr. Bowley, a contributor to the report.
This also means that low-income households are unable to reduce or change their spending habits in the face of higher costs, and have limited savings and investment accounts to cushion the blow. “They can’t simply scale back their consumption,” Dakunto said.
“It’s not that easy to shop around for,” especially when it comes to rent, Bowley added.
Credit card debt widening gap
A family shops at a Walmart Supercenter on May 15, 2025 in Austin, Texas.
Brandon Bell | Getty Images
How inflation is absorbed will widen inequality further, Dakunto said. When it comes to covering expenses, “higher income groups can enjoy benefits such as cash back and reward points by using credit cards,” he said, “lower income groups, on the other hand, tend to have more carryover debt.”
According to TransUnion, approximately 175 million consumers have a credit card. Although some people pay off their balances every month, about 60% of credit card users carry revolving debt, according to the New York Fed. That means they’re paying an average of about 20% a year on their monthly balance, making credit cards one of the most expensive ways to borrow money.
“Rising inflation means (low-income groups) accumulating more debt, which is very costly,” Dakunto said.
Researchers at the Bank of America Research Institute expect inflation to rise further next year, “which is likely to lead to further pressures,” Bowley said.
He said that as the consumer economy continues to polarize, the gap between rich and poor is worsening, and that “a K-shaped recovery is not very sustainable.”
Consumers are spending despite inflation concerns
At the same time, almost all households have been slow to adjust their consumption habits even as prices rise.
Even as consumer sentiment nears record lows, shoppers continue to spend, especially now during the peak holiday season, often turning to credit cards to fill the gap, other reports show.
But experts said the new year could come at a cost.
A recent Bankrate survey found that nearly a third of Americans, or 32%, feel their personal finances will worsen in 2026, marking the highest level of pessimism since 2018. A separate study by NerdWallet found that the same percentage of people feel “anxious” or “stressed” about their finances heading into 2026.
According to Dakunto, these concerns may be justified. He said the risk of continued inflation and rising debt burdens could leave many Americans financially vulnerable in the event of a recession.
“People are already suffering tremendously, especially at the bottom of the income distribution,” Dakunto said. “If an unexpected economic shock occurs in 2026, it will be very difficult.”
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