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Take a look at the chart above constructed from the Bureau of Labor and Statistics 2009 Consumer Expenditure Survey. It conveys a sense of how Egypt’s poverty combined with the sharp rise in food prices sparked the political revolt against the Mubarek government.

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.

Category: Commodities, Food and Drink, Inflation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

29 Responses to “How U.S. Income Groups Get Squeezed By Food Prices”

  1. Consumer units?

    What I find fascinating about that chart is that between 50K and 100K the level of consumption stays relatively flat. That must be the range where people are switching from home cooking to restaurant food and from regular to gourmet, organic etc.

    With wealth higher quality of food becomes a priority

  2. curbyourrisk says:

    Barry…I hope you are not questioning the rationalization of our government??? Might not be helathy for ya.

    On a side note, I have read that CPI adjustments now have housing exceeding 40% of the figure. Since they are STILL a deflating asset, this is helping the govenment keep the COLA at ZERO for seniors.

    Not stating this as fact, just saying what I have read on other sites.

  3. rktbrkr says:

    It’s the “little people” who spend on food and fuel – and pay taxes of course.

    Funny how the reaction to high food (and fuel) costs in Egypt is driving those costs even higher. Ben’s plan is working perfectly.

    The canal only transports a small % of middle east oil but the symbolism is generating a bigger reaction.

    Saw a great headline on CNN “camel riders beat demonstrators”. Riots followed by martial law. Mubarek must have substantial support – he wouldn’t have lasted 30 years without some grassroots support. Beware of interesting times.

  4. gringo says:

    Chart is also an excellent representation of how VAT and other consumption taxes are a disproportionate burden on lower income people.

  5. rip says:

    Excellent chart. And timely. Spells it out clearly. Core inflation my ass.

  6. jjay says:

    I just heard from Ben Bernanke.
    He said that he is sorry, he had no idea the poor were being adversely affected by his policies.
    He will immediately raise interest rates and adjust the CPI so that the little old ladies on SS get a fair rate of return on their savings and don’t freeze or starve to death.
    In other news, Mubarak said he will not seek another term of office as President of Egypt.
    I will keep you all posted on other events.

  7. VennData says:

    “…the annualised amount of $8,100bn paid to US employees in the last quarter broke the pre-crisis record…”

    http://www.ft.com/cms/s/3/c960a3bc-7bc8-11da-ab8e-0000779e2340.html

    American workers take home more pay, than ever before. How is the GOP going to spin this into a negative?

  8. brianinla says:

    >American workers take home more pay, than ever before.

    Yet another tool that thinks that debt equals wealth. Diluting the currency to have people take home more pay and then bragging about it. Brilliant! You would have been an expert shaver of silver coins in the Roman Empire.

  9. IS_LM says:

    Paul Krugman has already written, at length, on his blog why the core PCE inflation rate is the proper rate for the purposes of policy making, in particular, monetary policy.

  10. super_trooper says:

    @Barry,
    “In the U.S. the average annual income for the consumer units (households) measured is $62,857……..
    But averages distort the true picture…. as only 15 percent of consumer units fit into this income group.”

    To better make this point, display the median rather than mean.

  11. DL says:

    It’s also worth bearing in mind that Bernanke’s “easy money” policy is being done more for the benefit of the unemployed than for any other group.

  12. JSchmid says:

    The chart also shows why artificially, or as Obama has said “necessarily”, increasing the price of energy is needed to promote the conversion to “green” energy is in effect one of the most regressive taxes that would devastate the working poor in the US.

    Our government should never promote or put in place policies that raise the cost of 70%+ of energy consumed by Americans.

  13. dad29 says:

    Thanks for a very illuminating chart!

  14. curbyourrisk says:

    @ IS_LM

    news flash….Paul Krugman is nothing more than a TOOL for the government. He should have been stripped of his Nobel prize a while ago.

  15. Robespierre says:

    Add gas prices and the picture gets way uglier..

    @Barry
    “It may also help explain the rise in social angst in U.S. society.”

    Angst is a relative feeling difficult to quantify. You want hard numbers as to how hard Dr. Bens policies are hitting the middle and the low? Look at food stamps consumption… Dr. Ben is the inverse of Robin Hood

    @DL Says:

    ” more for the benefit of the unemployed than for any other group.” I’m assuming sarcasm here…

  16. b_thunder says:

    IMHO it’s also important to remember that the vast majority of households in the rest of the world fall into either $5-10k or $0-5K income groups…

  17. IS_LM says:

    @ curbyourrisk

    Remember my discount factor regarding opinions:

    1 – 0.25*Indicator{voted for Bush in 2000} – 0.75*Indicator{voted for Bush in 2004}

    And I doubt Bush believes that Krugman is a tool of the government. But I do love KDS.

  18. mbelardes says:

    I make this point every time BR discusses CPI. Cars and Houses are cheaper but the things we spend most of our money on are more expensive (include healthcare and education and the picture is bleak).

  19. homogenik1 says:

    the easy money policy has also helped people with adjustable rate mortgages. in most cases the benefits to those home owners would out weigh the negative impact of food inflation. Also consumers can also trade down in their consumer basket. The social angst in US society is fueled by unemployment and uncertainty as to the length of time it will take to generate jobs.

  20. IS_LM says:

    And by the way, curbyourrisk, the current Chairman of the Federal Reserve is: a neoclassically-trained PhD economist (who will likely win the Nobel prize based on his work on asset prices); a Republican; was a Bush economic advisor; was appointed to the Fed by Bush; and believes that the core PCE is the correct measure to use for policy making.

    Indeed, Bernanke was the only thing Bush got right. As Bernanke voted for Bush twice, I need to amend by discount factor:

    1 – 0.25*Indicator{voted for Bush in 2000} – 0.75*Indicator{voted for Bush in 2004} + 0.95*Indicator{you’re Ben Bernanke}

  21. Robespierre says:

    @homogenik1 Says:

    “. Also consumers can also trade down in their consumer basket. ”

    Well you should explain that to the more than 40 million (and growing) food stamp “consumers”. I guess they know nothing about trading down from cat food to hamster food.

  22. http://www.apeakunderthehood.blogspot.com/

    Does anyone give a ship?

    A fun entertaining read on the Baltic dry shipping index

  23. drericl says:

    As an internist in Austin I see a broad socio economic spectrum and get a good feeling for how the economy is affecting different groups.

    I never saw as many financially stressed lower middle class and poor-ish people as when gas got over 4$ a gallon a couple of years ago. It really hits this segment hard.

  24. _sass says:

    mr. ritholtz,

    i often find your insight thought provoking. i don’t read many comments here so please forgive my ignorance if any of this subject matter has been discussed. it seems obvious that the rationale for the all but correctionless skyward trajectory of the markets, i.e. the virtual absense of fear… at least since august 2010, in my opinion, breaks down like this:
    1.) pomo
    2.) pomo
    3.) pomo
    4.) increased pomo starting tomorrow (200 billion in short bonds over 8 weeks)
    5.) dollar weakness, euro strength
    6.) mostly bottom line increases in s&p earnings through cost cutting and/or the jobless recovery

    risk assets, stocks, commodities will continue their unrelenting rise until some time around march opex when the primary dealers are positioned to take it down ahead of the end of qe2. notiwthstanding potential qe3, bonds will sell off, 10 year will spike to 4′s, the intentionally delayed reaction to muni’s, europe, middle east, chinese/emerging market inflation will all be front page again and larry kudlow and ron paul will be needling bernanke.

    any bearish positions are lost money ahead of the end of pomo. everybody… f-i-r-e-i-n-c-a-i-r-o

  25. gd says:

    As you point out, Egypt food prices are an issue– because the country is poorer. Modern societies are characterized by more disposable income, less spending on essentials as the society becomes wealthy. I doubt what you show is a new development– I’d suspect it is leftovers from the old days, particularly as USA society has remained archaically stratified compared to other developed countries. The USA has a strong reactionary political component that is resisting social advancement– perhaps a common feature of declining empires? The USA poor are also much less likely to vote than higher income groups, ensuring they’ll stay right where they are until the pitchforks and torches appear like in Egypt. I’m not holding my breath on that one. We’re more like Orwell’s Oceania than Egypt.

    The post was by macroman, not Ritholtz, by the way.

  26. Breezy says:

    Barry,
    This chart may be very misleading without two more calculations and a net comparison.
    We need to know how big food and gas (f&g) inflation is, and compare it to deflation, if any, in the remainder of household budgets.
    For example, say food and gas comprise 25% of a household budget of $20,000, and it suffers 10% inflation. Then f&g inflation cost an extra $500. But, if 4% deflation occurred in the remainder of the budget, then savings of $600 offset the f&g inflation for a net improvement of $100. Maybe the household took advantage of RE price declines and moved to a lower rent apartment.
    In my household, my wife’s deflation savings on clothes purchases offset our gas and food inflation by a big margin.

  27. Joe Friday says:

    BR: “But averages distort the true picture of what is really going on…”

    A universal truth.

  28. the pearl says:

    Interesting chart.

    Some practical thoughts. Aren’t the very poor and the next notch up on the income scale on food stamp programs? Where is that cross over point? I don’t discount the food inflation, food security problem, but it would be interesting to know how many of those that the chart is claiming to be effected are changing their behaviors in other aspects of thier lives to offset the food inflation/fuel problem. Are people shutting off cable, turning in their cell phones, going on diets?

    There is no doubt the move from cheap food to more expensive food has an impact, but I think to a large extent, the impact is being somewhat over stated as a whole. Unlike healthcare or rent, it is one expense that a well focused family can have control over.

  29. carrottop says:

    somehow the FairTax movement ignores this.