Inflation Hits the Poor Hardest

The rise in the basic cost of living means that inflation disproportionately affects those with modest incomes. For example, in 2006, the top 20 percent of households by income spent about twice as much on staples as households in the lower-middle bracket. But the top-earning families had almost six times as much income.

In the Washington area, this has been hardest on families with modest to low incomes whose members have to drive long distances to work. However, incomes here are much higher than the national average, so more families are in the top 20 percent of earners nationwide -- those with more than $89,000 in income in 2006 -- and are better able to handle the higher prices.

The pinch of inflation from energy, food and health care is a significant factor in softening consumer spending, which in turn is the reason economic growth is slowing sharply this year. It is not the only reason consumers are pulling back, however. Lower home prices, less credit availability and dropping stock market values are other likely factors.

Those different sources of weakness are affecting different groups of consumers. Poor and middle-income people are suffering the worst from inflation, middle- to upper-middle-income families are bearing the brunt of the softer real estate market, and the affluent are pinched the most by problems in financial markets.

"There's really no segment of consumers that are escaping the slowdown right now," said Scott Hoyt, director of consumer economics at Moody's Economy.com.

The fact that inflation is being driven by commodities has made it tricky for the Federal Reserve as it tries to prevent the downturn from becoming a deep recession. The Fed's interest-rate cuts, for example, have contributed to a decline in the value of the dollar, which is one reason for higher prices. The central bank forecasts that prices for fuel and food will level off this year, but that could prove wrong. But in the Fed's view, there is not much it could have done to prevent the run-up in prices for working-class Americans over the past year, given the international origins of the inflation.

For now, the inflation in staples is forcing people to adjust.

"Everything is going up," said Ren¿ Chavez, 72, of Wheaton, speaking Spanish and sitting in the food court at the Wheaton Mall. "I have a car but now I take the bus, even if it is cold . . . my money now has less value," he said. "I go into a store with $6 and, imagine it, it isn't worth anything."

"Everything has gone up, eggs, milk, everything is very high, and we don't have a remedy," he said. "We have to eat."