Inflation has soared higher than any point in the last four decades, reaching 7.5 percent and spurred by supply-chain issues.
The Labor Department announced that the consumer-price index, a measurement of the consumer cost of goods and services, has reached its highest point since 1982 Feb. 10. Prior to the COVID-19 pandemic, the annual rate of inflation was 1.8 percent.
In January, the cost for food, housing, electricity and vehicles increased. Used car prices rose by more than 40 percent, year over year; food prices rose by 7 percent, with the cost of meat and eggs leading the increase; energy prices, including gasoline, oil and electricity, increased by 27 percent. These increases have added up to $250 a month in living expenses. The cost of healthcare and childcare also has increased.
Inflation has soared higher than anticipated, but economists have held out hope that early 2022 may be the worst of it. Goods imports reached a record high in December, as supply chain bottlenecks began to ease.
However, businesses small and large are seeing increases in supply, labor and transportation costs and many are being forced to pass on a portion of these to consumers. Wages continue to rise, pushed up by a labor shortage – there were more than 10 million open positions in December. Deepening the problem is that wage gains, about 4 percent, are being erased by inflation – average weekly earnings, adjusted for inflation, fell 3.1% in January.
Adding to this, there is a difference between the way inflation impacts wealthier households and low- to middle-income households, known as inflation inequity, and it has grown from 0.16 percentage points in January 2021 to 0.6 percentage points in December, the highest it has been since 2010, just after the Great Recession.
Higher income families can cut back on luxury spending during inflation, but LMI families spend a larger portion of their household incomes on necessities like food and gasoline, meaning they have few places to cut spending. The Department of Agriculture estimated that a “thrifty” average food budget rose from $671 in December 2020 to $863 in December 2021, and those in the lowest fifth of income earners already spend more than 80 percent of their income on housing, leaving a razor-thin margin. Utility costs have increased by a third, and gasoline has increased by 58 percent.
As inflation takes a bigger bite out of LMI household’s income, they have fewer places to cut, and there’s very little, if anything, that municipal officials at a local level can do but watch.
So, what happens when a LMI household is hit by an economic shock, or large, unexpected expense?
Even before this crushing round of inflation, 40 million Americans were living in poverty, with 18.5 million living in extreme poverty, or having an income of $12,000 or less for a family of four. Forty percent of households doesn’t have the savings to weather an economic shock like a broken water or sewer line.
This is where the NLC Service Line Warranty Program can help municipal officials shield their residents from the financial shock of an unexpected home repair that impacts their daily quality of life.
The program prepares residents by educating them about their service line responsibilities in tandem with partner communities, at no cost to the municipality. In addition, the program offers a completely optional warranty program at an affordable price.
Plan holders have access to a repair hotline 24/7/365 and a nationwide network of pre-vetted, licensed and insured contractors. When a plan holder has an issue, they make one call, and the Program dispatches a qualified contractor to their home. There is no call out fees or deductibles, and the Program pays network contractors directly, so there is no need for the resident to pay out of pocket and wait for reimbursement.
To learn how municipalities and the Program can work together to shield residents from yet another unexpected expense, contact us.
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