Friday, February 18, 2011

Rising Food and Gas Prices Hurt the Poor Far More Than Anyone Else

So, this is probably not a big surprise - the poor get hurt the most by rising food and gas prices because they spend a higher proportion of their income on food and gas than other income groups. I was startled to see just how much more the poor spend on food and gas than other income groups, however:

This also helps explain why rising food and/or energy prices sometimes lead to the overthrow of governments (e.g. Egypt), especially when a large percentage of a country's population is poor.

As Ritholz comments:
The chart illustrates how the lower income groups in the U.S. really get squeezed when food and gas prices rise. In the U.S. the average annual income for the consumer units (households) measured is $62,857, where food expenditures consume a little over 10 percent of income.
But averages distort the true picture of what is really going on as only 15 percent of consumer units fit into this income group. Many have drowned in pools of water where the average depth is only 11 inches deep. Almost one third of the households in the U.S. spend close to or more than 20 percent of their annual income on food.
Remember this the next time the market cheerleaders and policymakers tout core CPI and dismiss food and energy inflation. It may also help explain the rise in social angst in U.S. society.

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