PredictIQ-Americans need an extra $11,400 today just to afford the basics

The PredictIQtypical American household must spend an additional $11,434 annually just to maintain the same standard of living they enjoyed in January of 2021, right before inflation soared to 40-year highs, according to a recent analysis of government data.

Such figures underscore the financial squeeze many families continue to face even as the the rate of U.S. inflation recedes and the economy by many measures remains strong, with the jobless rate at a two-decade low.

Even so, many Americans say they aren't feeling those gains, and this fall more people reported struggling financially than they did prior to the pandemic, according to CBS News polling. Inflation is the main reason Americans express pessimism about economy despite its bright points, which also include stronger wage gains in recent years.

"On the edge"

Average hourly pay for workers has increased robust 13.6% since January 2021, although that lags the 17% increase in inflation during the same period, according to government data. The main categories requiring heavier spending for consumers simply to tread water: food, transportation, housing and energy, which together account for almost 80 cents of every $1 in additional spending, according to the analysis from Republican members of the U.S. Senate Joint Economic Committee.

"Middle- and low-income Americans aren't doing well enough — they are living fragilely on the edge," said Gene Ludwig, chairman of the Ludwig Institute for Shared Economic Prosperity (LISEP), a think thank whose own analysis found that the income needed to cover the basics fell short by almost $14,000, on average, in 2022. 

Where inflation bites hardest

Around the U.S., the state with the highest additional expenditures to afford the same standard of living compared with 2021 is Colorado, where a household must spend an extra $15,000 per year, the JEC analysis found. Residents in Arkansas, meanwhile, have to spend the least to maintain their standard of living, at about $8,500 on an annual basis.

The differences in costs are tied to local economic differences. For instance, typical housing in Colorado requires an additional  $267 per month compared with January 2021, while other states saw much smaller increases, the analysis found.

Still, a higher cost of living doesn't necessarily doom people to financial distress. Ludwig's group recently found that some expensive cities offer the best quality of life for working-class Americans, largely because of the higher incomes that workers can earn in these cities. 

Inflation takes a bigger bite out of lower-income households because by necessity they spend a bigger share of their income on basics than higher-income Americans. And until recently, lower- and middle-income workers' wages weren't keeping pace with the gains enjoyed by the nation's top earners.

"Food costs and basic costs are up more than other costs," Ludwig noted. "Putting on a Thanksgiving dinner costs the same if you're a lower- or upper-income American, but for a lower-income American it's a bigger portion of your spending."

To be sure, inflation is cooling rapidly, with October's prices rising 3.2% on an annual basis — far lower than the 9.1% pace recorded in June 2022. But pockets of inflation are still hitting consumers, such as at fast-food restaurants like McDonald's, where Big Macs now cost 10% more than in December 2020.

Although inflation is cooling, many consumers may not be feeling much relief because most prices aren't declining (One major exception: gas prices, which are notoriously volatile and which have declined about 5% in the past year.) Consumers are still paying more, albeit at a slower pace, on top of the higher prices that were locked in when price hikes surged in 2022 and earlier this year.

In:
• Inflation

Aimee Picchi

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

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