By Reshonda Tate
With prices rising to the highest rates the U.S. has seen in more than 40 years, Black families are bearing the brunt of inflation. Researchers say Black families will suffer the worst because they lag behind their white counterparts in income, wealth, financial savings and home ownership. However, with smart planning, families can ride the rising inflation wave with minimal impact.
A study published by the Federal Reserve Bank found that necessities such as groceries, electricity, and wireless phone service make up a larger share of Black families’ budgets. Black households are also spending a larger portion of their income on goods and services with prices that change more often, the study said.
Munseob Lee, an economist who co-wrote the study, said many Black Americans are also living in food deserts and paying higher prices for groceries at convenience stores. Inflation only increases the price of those convenience store products and forces Black shoppers to have to travel farther for groceries, meaning they are subject to the higher gas prices, he said.
“If prices paid by white households increase by 7% over a year, our calculations suggest that one may expect them to increase by 7.5% for Black households,” the study notes as an example.
A devastating disparity
The disparity leaves many Blacks without the funds to help offset rising consumer prices and puts greater pressure on their monthly income, economists say. Some economists fear that if lawmakers don’t act soon to combat inflation in other ways, Black families may be forced to go without necessities as the threat of another recession looms.
“It’s going to be extremely devastating,” said William Darity Jr., professor of public policy, African American studies and economics at Duke University. “People will have to make very, very hard decisions about whether or not to purchase medicines or buy food or forgo payment of their utilities. It will have harsh effects on people’s well-being.”
Darity said the nation’s wealth gap has made it difficult for Black families to maintain financial savings or transfer wealth through generations like many White families have been able to do. He said racist policies such as redlining and depriving former slaves of land promised to them have historically set Black Americans behind.
How inflation hurts Black America
Minimum wage workers are poorer. Wages are rising at their fastest rate since the 1980s, but they still aren’t keeping up with inflation. With prices rising so fast, minimum wage workers are poorer than they have been in decades. According to the U.S. Bureau of Labor Statistics, 3% of minimum wage workers were Black Americans in 2018.
Inflation tends to hurt workers. Black Americans constitute 13% of the U.S. workforce, according to the U.S. Bureau of Labor Statistics. So as inflation increases, Black America is hurt.
Inflation inequality reinforces economic disparities. With inflation inequality, prices may rise more quickly for those who have lower incomes. In low-income areas, goods experience an increase in prices since there is no spur of innovation and competition to drive down prices.
Fewer opportunities to become a homeowner. Economists say homeownership is an important way to help close the racial wealth gap. Black homeownership dropped to 43% in 2017, erasing all of the gains made since the passage of the Fair Housing Act in 1968. Now due to inflation, the stats will be even more dire. With the boom in home sales slowing down and real estate prices rising, new homes are unaffordable for many people.
Median household wealth
If rising costs are hitting your budget, here are some tips to help you cope.
Have your mind on your money
Knowing how much you spend every month is key. Take time to write out how much you spend day-to-day. This will help you see what’s coming in, what’s going out, and which unnecessary expenses you might be able to cut.
Budgets often reveal expenses that can be eliminated entirely or impulsive spending that can be avoided with planning. when it comes to reducing expenses, evaluate every item you purchase and ask, “Is this a need or want-to-have item?”
Save, even if it’s $5
The more non-essential expenses you can cut, the more you can save. It’s not possible for everyone, but Gene Natali, cofounder of Troutwood, an app that helps people create financial plans, says it’s ideal to budget to save enough to cover basic necessities for three to six months.
Programs such as America Saves, a non-profit campaign by the Consumer Federation of America, can help create a roadmap. Keep an eye on the monthly fees or service charges that might eat into your savings. But don’t limit your options. Online banks sometimes offer better rates than traditional ones.
Consolidate and curb loans
As interest rates rise, experts recommend that you consolidate your loans to have just one fixed-rate loan and, if you can, pay down as much of your debt as possible.
But paying off your existing debt is easier said than done. The Federal Trade Commission’s Consumer Advice guide for “Getting Out of Debt” can help you make a plan. With interest rates high, it’s also not a great time to take out new loans for big expenses like cars, though experts do recommend that if you need durable goods such as vacuum cleaners, stoves or dishwashers, you buy them as soon as possible to avoid future price increases.
Since the pandemic, many companies have updated their relief policies and have become more flexible with users, according to Kia McCallister-Young, director of America Saves.
Calling providers of monthly services to negotiate bills — whether it’s utilities, phone service, cable, internet, or auto insurance — can lead to meaningful savings, said McCallister-Young. Individuals can ask for the best rate, any available discounts, rebates, or coupons that can lead to a lowered monthly fee. If a provider is competitive with other companies, there’s an even better chance of getting a discount, she added.
Check out federal programs such as the Low Income Home Energy Assistance Program, which helps cover bills, and Lifeline, which can assist with phone bills.
Grocery shopping with a meal plan, buying generic rather than brand-name or purchasing in bulk are some of the recommendations from the Consumer Federation of America.
“A lot of stores have price matching, so if you show them that a competitor is selling the same product at a lower rate, they’ll match that,” said McCallister-Young. “You also want to be looking at the stores that are closest to you, so you’re not spending the extra money you’d save on gas.”
Obtain community assistance
If you are experiencing food or housing insecurity, look for non-profit or community organizations around you. From housing support and food banks to utility assistance, non-profit organizations around the country can help. National organizations such as Feeding America host food banks in all 50 states.
What is the Inflation Reduction Act?
Senate Democrats recently passed the Inflation Reduction Act 2022 to battle the rising inflation costs. Vice-President Kamala Harris cast the tie-breaking vote for the 755-page legislation, which included a failed provision offered by Sen. Raphael Warnock (D-GA) that would have capped the cost of insulin products at $35 per month for those with private insurance.
For the most part, this isn’t a bill about 2022, rather 2023 and beyond, economic officials say. It’s about helping the Federal Reserve to fight against persistent inflation.
“Although not perfect, the Inflation Reduction Act is a step forward. It is troubling that seven Senators blocked the cap on insulin costs for individuals with private insurance. Although diabetes affects far too many Black Americans, the Inflation Reduction Act will allow the government to negotiate prices on prescription drugs, provide continued subsidies for Obamacare, and invest in clean energy,” the NAACP said in a statement.
Still, despite the bill’s fraught journey and many compromises, there are some victories that directly impact African Americans.
Lowering the cost of prescription drugs
In the area of health reform, the bill takes on making prescription drugs more affordable — but there are some limits. The federal health secretary will be able to negotiate the prices of certain expensive drugs each year for Medicare. But this won’t impact every prescription drug or every patient, and it won’t take effect quickly. The negotiations will take effect for 10 drugs covered by Medicare in 2026, increasing to 20 drugs in 2029.
Tackling climate change
More than $300 billion would be invested in energy and climate reform, the largest federal clean energy investment in U.S. history. This includes tackling environmental racism in communities of color.