The fastest rise in inflation in more than four decades is hitting low- and middle-income Americans harder than more affluent households.

Many of these lower-income households, already struggling during the pandemic, are seeing the costs of necessities, particularly food and gasoline, surge at levels well above other goods and services. These households have gloomier outlooks, as well: They expect inflation to continue to rise at a rate well above where richer Americans believe it will be.

"The things that are inflating more greatly comprise a larger share of lower income peoples' budgets," said Christopher Wimer, co-director of Columbia University's Center on Poverty and Social Policy. "It's stretching already-stretched budgets even more."

Basic necessities rise fastest

The Consumer Price Index, the market's preferred inflation metric, jumped 8.6% from May 2021 to May 2022, the largest year-over-year increase since 1981. But middle-income households, those making between $50,000 and $125,000 annually, saw a 9.4% increase in inflation over that same time frame, according to Bank of America Institute estimates. Households making over $125,000 saw an annual inflation increase of 8.9% in May, according to these estimates. Lower-income households, those making less than $50,000 per year, saw inflation growth of 9.3% in May.

Middle-income consumers are being hit by "extremely elevated" auto prices and the spike in gasoline prices, said Anna Zhou, an economist with the Bank of America Institute. Gasoline prices rose 48.7% from May 2021 to May 2022, while used car and truck prices jumped 16.1% and new vehicle prices rose 12.6%.

"These groups are spending a bigger wallet share on these sectors," Zhou said.

Inflation expectations

Lower-income households also anticipate significantly higher inflation in the future. Households with incomes under $50,000 a year expect inflation to be 7.2% a year from now and 4.7% three years from now, according to a Federal Reserve Bank of New York survey. Households with annual incomes over $100,000 foresee those numbers at 6.4% and 3.9%, both 80 basis points lower than lower-income household expectations.

Not only have the poorest Americans been hit hardest by inflation, but they are also often the first to notice when prices increase, said Matt Darling, an employment policy fellow at Niskanen Center.

"A lot of people assume that poor people are bad at keeping a budget, that's why they're poor, but it's actually exactly the opposite," said Darling.

Many higher-income Americans might only have a rough idea of what a cab ride or a gallon of milk costs, but lower-income Americans — many of whom live on fixed budgets and perpetually on the brink of being unable to cover necessities — tend to be more acutely aware of how these costs change by the day.

"Living in poverty changes how you evaluate consumption choices and you're actually much more attuned to these changes in prices," Darling said.

'Still not enough'

George Rodriguez, a landscaper from Paterson, New Jersey, has spent the past few months trying to beat inflation with little success. He drives to a gas station on the edge of town for gas that is about 20 cents cheaper per gallon than his closest station, but he is still paying $2 more per gallon than he was a year ago.

He stopped going to restaurants, cut out soda and juice to drink only water, and is planning to hold on to his 20-year-old car until prices drop.

"It's still not enough," Rodriguez said. "You save a few pennies or nickels there, but then you're spending a lot more dollars than you were a year ago."

For Americans like Rodriguez, often living from one paycheck to the next, inflation's impact is particularly acute as food and energy prices have climbed 10.1% and 34.6%, respectively, over the past year, according to the latest government data.

No wiggle room

"When they have to spend an extra $2 per gallon on gas it's taking a bigger bite out of their budget," said Jonathan Fisher, a research adviser at the Washington Center for Equitable Growth. "They just have less wiggle room to adjust to those price changes."

Lower-income Americans also have fewer options to cut costs, Fisher said. Affluent consumers could shop at a lower-priced grocery store, start using coupons or buying cheaper, generic items. The less well-off likely were already doing this.

"The lower income people were already buying store brand cereal and the high-income people were buying the name brand," Fisher said. "When inflation goes up, the higher income people can switch to the store brand while the lower income people don't have a lower price option."

The rise in inflation has been compounded by the loss of government stimulus checks and the expiration of child tax credits, putting additional financial pressure on lower income households. The U.S. personal saving rate fell to 4.4% in April, the lowest since September 2008, according to the U.S. Bureau of Economic Analysis.

Little relief in sight

Policymakers have few effective ways to ease inflation's bite out of household budgets.

President Joe Biden has proposed a three-month suspension of the 18-cent federal tax on gasoline, though critics have dismissed the measure as doing little to curb rising costs. Roughly 23 million eligible California residents will also receive payments up to $1,050 as part of a $17 billion inflation relief package, Gavin Newsome, the state's governor, announced June 26.

A first step to providing more relief would be measuring inflation's impacts more precisely. The disproportionate effects have sparked calls for government analyses to more accurately reflect how rising prices hit various income groups differently. In May, the National Academies of Sciences, Engineering, and Medicine issued a report calling on the U.S. Bureau of Labor Statistics to modernize how it measures inflation, including development of price indexes specific to different income groups.

"One factor that can lead to differential inflation rates — and, as it turns out, the easiest one to measure — is that people purchase different baskets of goods and services," the report stated.