The Purchasing Power of Household Incomes from 2019 to 2022

The rise in inflation since mid-2021 to multi-decade highs presents a worrying trend for households’ financial health, particularly if nominal incomes, or non-inflation adjusted income, of financially vulnerable families lag behind prices. Policymakers have noted that lower income households are more vulnerable to increases in consumer prices given their higher share of spending on necessities. While elevated cash balances during COVID have provided a cushion for spending, savings stockpiles have declined from their peaks, implying sustained consumption at recent levels will soon require higher real incomes or further liquidity drawdowns. This raises important questions as to how households have been coping. Have nominal incomes kept pace with inflation to allow households to maintain their purchasing power? What types of households are doing better or worse?