Michelle ThompsonChiugo Akujuobi has relied on food pantries and donations from friends since leaving their family home in Houston earlier this year, tired of enduring transphobic comments from relatives. The 26-year-old, now staying on a friend’s couch in North Texas, graduated with a bachelor’s degree from Scripps College in 2021 but has struggled to secure a full-time job. Instead, they work contractually in graphic design, social media marketing, and copywriting. Akujuobi is among millions of Americans facing economic hardship. They estimate earning less than $10,000 this year, while the poverty line for a single person in 2023 was $15,480, according to Census Bureau data.
Although the cost of living crisis in the U.S. has eased somewhat, low-income Americans continue to struggle after years of high inflation and elevated interest rates. Their situation could worsen if President-elect Donald Trump follows through on plans to impose significant tariffs on the country’s three largest trading partners, potentially reigniting inflation, according to economists.
“I don’t know how I’ve survived this long,” Akujuobi said. “If it gets worse, I know that poor people will still be resourceful. We just make do with what we have.”
Still reeling
Inflation has significantly decreased from the 40-year highs of 2022, when gasoline prices surpassed $5 per gallon and home prices saw double-digit increases. However, prices were still up by a cumulative 22.2% in November compared to January 2020, according to the latest Consumer Price Index, which tracks price changes of commonly purchased goods and services. After raising interest rates to a 23-year high, the Federal Reserve began cutting rates in September. Despite this, officials have acknowledged that borrowing costs are still impacting parts of the economy and have stated that they are not in a hurry to lower them.
Many Americans are still struggling financially. A Bank of America Institute report found that nearly 30% of US households this year spend more than 95% of their disposable income on essential expenses like housing, groceries, and utility bills, an increase from 2019. This figure rises to around 35% for households earning less than $50,000 annually.
“Lower-income households are always going to be the ones that feel the brunt of high inflation and high interest rates,” said Elizabeth Renter, senior economist at NerdWallet.
A shopper inside a Dollar General Market store in Saddlebrook, New Jersey, on February 29.
Wage growth began to outpace inflation in early 2023, with US households at the lower end of the income spectrum seeing their wages grow the second-fastest, according to data from the Atlanta Fed. However, their earnings have slowed sharply since then, lagging behind the wage growth of wealthier Americans as of November.
Retailers offering affordable and essential items, such as Ross Stores, Dollar General, and Walmart, have benefited from price-conscious consumers. Walmart posted higher-than-expected revenue for the first quarter of the year, while Dollar General reported increased foot traffic.
Despite this, retailers have also noted signs of strain among low-income consumers. “If you listen to earnings reports from some of the retailers who serve low- and moderate-income people, they uniformly say that people are under pressure,” Fed Chair Jerome Powell said at an event in New York earlier this month.
Will there be more pain ahead?
If Trump goes ahead with imposing 25% tariffs on imported goods from Canada and Mexico, and an additional 10% on Chinese goods, economists at the Yale Budget Lab estimate that prices could rise by 0.75% next year. This would reduce annual purchasing power by about $1,200 per household, based on 2023 dollars. However, prices may increase less if consumers buy goods produced domestically or from countries with lower tariffs.
Unlike the inflation surge of 2021, which was largely driven by pandemic-related demand and supply disruptions, this time Americans won’t have the benefit of pandemic savings or the expired pandemic-era programs, such as the extended child tax credit and free school lunches.
“Households are not in as good a shape as they were coming immediately out of the pandemic, but we’re talking about a different inflation scenario,” said Shannon Grein, an economist at Wells Fargo. “Tariffs could cause one-time price adjustments, but companies aren’t likely to continue raising prices month after month as they did due to pandemic-related supply and demand imbalances.”
Nevertheless, low-income households would be disproportionately affected by this situation, Grein added. “Next year, we’ll likely see positive but slowing spending, masking vulnerabilities that will heavily impact lower-income groups dealing with inflation and interest rate hikes.”
