Editor's note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. Uneven pain — Americans really, really hate inflation. It's a painful lesson that policymakers at the Federal Reserve and the White House are relearning after decades of relatively low and stable prices. But the pain isn't shared evenly. Lower-income households who spend a greater share of their budgets on essentials like food and energy tend to be hit harder by the effects of higher inflation. That was true before the pandemic, even when prices were relatively stable. But the disparities between different demographic groups have surged since price pressures started accelerating in early 2021, according to an analysis by researchers at the New York Fed. The researchers looked at major consumer spending categories, such as transportation, gas and groceries, to come up with a new measure of inflation that takes account of each demographic group's consumption basket — that is, how they allocate their spending. In 2019, they found Black and Hispanic Americans experienced slightly lower inflation than the national average, and Asian Americans slightly higher. (Inflation for white Americans was in line with the national average.) During the 2020 recession, inflation rose for Asian Americans and fell for Black, white and Hispanic Americans, before leveling off. Fast forward to early 2021: As inflation started climbing last year, the disparities between demographic groups started to widen. A lot. Black and Hispanic Americans were hit with higher inflation, while for Asian Americans, it was lower. While the size of the disparities are not huge compared to the national average — 0.2 to 0.6 percentage point higher for Black and Hispanic Americans in May, and 0.5 percentage point lower for Asian Americans — the gaps between demographic groups were more than twice as large as those in 2019, the researchers found. Those widening disparities "suggest large changes in the magnitude of inflation inequality," wrote Ruchi Avtar, Rajashri Chakrabarti and Maxim Pinkovskiy. What's more, the researchers acknowledge their method probably understates the disparities, "because, in addition to consuming different bundles of goods, different demographics likely face different prices for the same goods, with less advantaged demographics facing higher price growth." Why does it matter? It's another wrinkle in the debate over how the Fed is trying to steer the economy through the highest inflation in decades. In some ways, this is the reverse of the problem policymakers faced following the 2007-09 recession, when inflation remained very low but unemployment stayed elevated for years, with some groups experiencing long spells of joblessness, the Fed researchers noted. Following that slow recovery, in which the Fed faced some criticism for raising rates too early, the Fed under Chair Jerome Powell revamped its policy framework, with a sharper focus on promoting "broad-based and inclusive" maximum employment. That meant the Fed kept rates low last year, even as inflation began to rise, fostering a remarkably fast labor market recovery that saw the employment gaps between demographic groups quickly narrow. At the same time, however, price pressures soared and broadened, and hit some groups harder than others.
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