Chiugo Akujuobi has been relying on food pantries and support from friends ever since they left their family home in Houston earlier this year. They made the difficult decision to leave due to the constant transphobic remarks made by their relatives.
After graduating from Scripps College in 2021 with a bachelor’s degree, the 26-year-old found themselves sleeping on a friend’s couch in North Texas. Despite their qualifications, they have been facing difficulty in securing a full-time job. In the meantime, they have been taking up contract work in graphic design, social media marketing, and copywriting.
Akujuobi, like many Americans, is facing financial difficulties in today’s economy. According to their estimation, they earned less than $10,000 this year. It is important to note that the poverty line for a single person in 2023 was $15,480, as reported by the Census Bureau.
The burden of the cost of living crisis in the US has somewhat alleviated, but low-income Americans continue to face difficulties following a prolonged period of high inflation and elevated interest rates. Economists warn that their situation may further deteriorate if President-elect Donald Trump fulfills his promise of imposing substantial tariffs on America’s three largest trading partners, potentially reigniting inflation.
Akujuobi expressed astonishment at her ability to persevere in such challenging circumstances. She acknowledged that if the situation deteriorates further, individuals who are economically disadvantaged will continue to demonstrate resilience by making the most of the limited resources available to them.
Inflation has significantly decreased compared to the record highs of 2022, where gasoline prices reached over $5 per gallon and home prices skyrocketed by double digits.
According to the latest Consumer Price Index, prices have increased by a cumulative 22.2% in November of this year compared to January 2020. The Federal Reserve, after raising interest rates to a 23-year high, has finally started to decrease rates in September. However, officials have mentioned in recent speeches that borrowing costs are still causing difficulties in certain sectors of the economy. It is worth noting that the Fed has expressed no urgency in reducing borrowing costs.
A significant number of Americans are currently facing financial difficulties. According to a report by the Bank of America Institute, nearly 30% of US households stated that they spend over 95% of their disposable income on essential expenses like housing, groceries, and utilities. This percentage has increased from the levels observed in 2019. Moreover, households earning less than $50,000 annually face an even higher burden, with around 35% of their income going towards these necessities.
Elizabeth Renter, senior economist at NerdWallet, explains that lower-income households bear the heaviest burden when it comes to high inflation and high interest rates.
According to data from the Atlanta Fed, wage growth has finally started to surpass inflation in early 2023. Interestingly, households on the lowest income bracket experienced the second-fastest wage growth during this period. However, their earnings have since decelerated significantly, falling behind the wage growth of the wealthiest Americans as of November.
Retailers like Ross Stores, Dollar General, and Walmart have experienced significant success due to their ability to provide affordable prices and essential products. Walmart, for example, exceeded revenue expectations in the first quarter of the year, while Dollar General observed a rise in customer visits.
Retailers have also observed indications of low-income consumers experiencing financial difficulties.
According to Fed Chair Jerome Powell, retailers who primarily serve low- and moderate-income individuals have consistently reported that people are facing financial strain. Powell made this statement during an event in New York.
Economists at the Yale Budget Lab have estimated that if President Trump goes ahead with his plan to impose 25% tariffs on imported goods from Canada and Mexico, as well as an additional 10% duty on Chinese goods, prices could increase by 0.75% next year. This would have a significant impact on consumers.
According to the estimate, this would result in a decrease of approximately $1,200 in annual purchasing power per household, in 2023 dollars. However, prices may increase slightly less if Americans choose to buy products that are made domestically or imported from countries with lower tariffs.
According to economists, a future high-inflation episode would differ from the recent one in 2021, which was primarily caused by pandemic-related disruptions in both demand and supply.
This time, Americans will not be able to rely on the savings they accumulated during the coronavirus pandemic or on benefits from pandemic-era programs that have expired, such as the extension to the child tax credit and free school lunches.
According to Shannon Grein, an economist at Wells Fargo, households are not as financially stable as they were when the pandemic first started. However, she emphasizes that the current inflation scenario is different from before. Grein explains that tariffs can be seen as one-time price adjustments, and companies are not likely to continuously raise prices due to new tariffs. This is in contrast to the supply and demand imbalances experienced during the pandemic.
Grein mentioned that low-income households would bear the brunt of the impact in this situation.
According to the expert, next year will likely see a positive spending environment, albeit with a slowdown. However, this positive outlook may overshadow the vulnerabilities that are becoming more apparent and affecting the lower-income segment. Factors such as inflation and interest rates will have a much greater impact on this group.