Rising Cost of Essential Goods Disproportionately Affects Low-Income Marylanders

Over the past few months the inflation rate has soared to historic highs. Inflation has climbed to its highest level in the last 40 years, raising prices and leaving people stressed about their ability to make ends meet. This is especially the case for those who are low income and are still facing challenges from the effects of the pandemic. Policymakers should take steps to lessen the impact on families, as inflation reinforces the disparity between low- and high-income households across the nation and in Maryland. State policymakers can work to address these growing disparities and prioritize families, small businesses, and low-income Marylanders by taxing corporations with excess profit, continuing to provide support to low-income Marylanders, investing in care, and raising wages.

In the past year, inflation has skyrocketed to an extent that has not been seen for decades. Between March of 2021 and March of 2022 inflation, typically measured by the average growth in costs for a range of household goods, rose from 2.6% to 8.5%, the highest inflation rate since 1982. A number of factors from supply chain issues caused by the COVID-19 pandemic to corporate greed, to geopolitical disruptions have led to this monumental rise in prices across the country and around the globe.

What factors have driven high inflation?

• The COVID-19 pandemic has massively disrupted global supply chains, closing ports and factories.
• The pandemic created a major shift in consumer demand, reducing demand for services (such as restaurants) and increasing demand for goods (such as computer upgrades for home offices). This shift in demand heightened price pressures due to supply chain issues.
• The global semiconductor shortage – partly caused by the pandemic – created manufacturing bottlenecks and increased prices. These bottlenecks had ripple effects, such as increasing demand for used cars, which then shot up in price.
• Historically high corporate profits suggest that businesses are charging significantly more than production costs.
• Global crude oil prices have risen significantly, first because oil companies did not ramp up production as quickly as demand recovered and then because of disruptions caused by Russia’s invasion of Ukraine.
• The best evidence indicates that the American Rescue Plan was not one of the main drivers of inflation. Inflation has risen globally, including in countries that did not provide as robust recovery legislation as the United States. Furthermore, high corporate profits are out of step with the typical pattern when an “overheated” economy drives rising inflation.

The rise of inflation has posed serious problems for small businesses, families and individuals across the nation. Rising inflation diminishes the purchasing power of the U.S. dollar, meaning it costs people more money to buy the same products they purchased in the past. Specific necessities such as food, rent, and gasoline have been especially expensive as of late. This is affecting the daily lives of Americans, altering where they go, what they do, where they live, and what they eat, among a number of other things. Inflation is putting some Americans in hard positions where they are forced to choose what they are going to give up.

The current inflation levels have been a burden for people across the country, but it has hit those of lower-income much harder than the rest. Lower-income households spend 77% of their income on necessities, compared to only 31% in higher-income households. Lower-income households have a much smaller financial cushion than those of higher-income and often experience greater difficulty switching to cheaper alternatives. For example, the household that already buys the store brand products at a grocery store isn’t able to find cheaper alternatives if they are already buying the cheapest option.

In addition to this, high-income individuals are more likely to own assets like stock and real estate that often increase in value during inflationary times, further increasing disparities in wealth. High-income individuals are also able to take on more debt and during inflationary times the cost of debt is lowered, again enlarging the gap. The Consumer Price Index – the most common method for measuring inflation – has revealed the extremely high level of inflation but, while these statistics are very valuable, they don’t paint the full picture of how certain communities are impacted by inflation. Just as lower-income households represent a smaller portion of overall spending, their experiences are underrepresented in the indexes that track average consumer spending. Research conducted by the Bureau of Labor Statistics reveals that consumer prices for Americans with the lowest income grew faster than overall inflation between 2003 and 2018, while the opposite was the case for the highest-income quartile.

Many small, local businesses are feeling the pinch as well. In a recent survey of 10,000 small businesses, 80% of businesses saw the financial health of their business suffer over the past six months and 60% of businesses raised the prices of their goods and services to pay for these increases. As Kim Shanahan, the owner of a small gift basket business in Maryland recently told the Maryland Daily Record, “I feel like I spend all of my time lately just readjusting products. I am trying to figure out how do I still make this work (and) stay in the same price point for the customers?”

It often doesn’t take huge changes in prices to have huge effects on people’s lives. That is especially the case for those who are already living paycheck to paycheck. Between December 2021 and February 2022, 38% of Maryland residents reported having a slight to moderate difficulty paying for household expenses and 12% are having a “very difficult time.”  Higher prices combined with the expiration of the increased monthly Child Tax Credit at the beginning of this year has left families struggling to meet their needs. In Maryland, from June 2021 to February 2022, the number of people having a very difficult time paying their bills increased by 50%.

Inflation is driven by global forces, so state and local policy can’t do much to reduce it, but it can dampen its impact on Maryland families.

• Maryland should prioritize low-income families and continue and strengthen the means of assistance that were put in place earlier in the pandemic.
• Maryland can mitigate the impact of inflation is by investing in care. As the Federal Reserve continues to restrain inflation by hiking up interest rates, higher unemployment and a weaker labor market are historically likely ramifications. In the face of these concerns, continuing to build the state’s support of child and elder care through subsidies and investments to providers could expand the labor supply by enabling parents and working-age caretakers to seek employment.
• Maryland can soften the blow of inflation by reviving the excess profits tax. The corporations that are profiting from these times of economic hardship should be taxed on their excess profit to support those who are suffering from the current state of the economy.
• Raising wages to keep up with inflation is another essential tool to combat these issues. For example, in Worcester County, Maryland, the public school system budgets for a 4% cost-of-living adjustment. This is reasonable increase to adjust for typical inflation, but even that isn’t nearly enough in the current economy. Inflation has grown faster than wages, leaving Marylanders in a deficit that many are struggling to overcome, but raising wages to better keep up with inflation would lessen its impact.

Maryland has a responsibility to make the state a more equitable place and ensure that all households can meet their needs.