The central economic debate in the United States right now is the degree of aggressiveness of the Federal reserve in an effort to reduce inflation.

Few economists argue against raising interest rates to reduce demand, but there are trade-offs, at least in the short term.

If monetary policy is too tight, we could have an unnecessary recession; if it’s not strict enough, inflation will persist and maybe it is rooted in people’s expectationsso it will be more difficult to reduce later.

In addition, there is the question of where to stop:

even some economists who have been relatively hawkish, like Olivier Blanchardformer chief economist of the International Monetary Fund, have argued that returning inflation to 3%, instead of the current 2% target, That would be enough.

To a large extent, we are talking about balancing the risks.

But how to weigh these risks depends in part on the severity of inflation.

And an argument that I’ve been seeing a lot lately is that inflation is bad because falls mainly on low-income families.

But is this statement correct?

Seems like it should be true.

And it’s all too easy to find scenes of uneven hardship in America today, with the top 1% or even the upper class living the high life while low-wage workers desperately seek help from food banks.

However, inequality is not something that has just happened in the last couple of years; scenes like this could have been found anytime in recent decades, even when inflation was low.

And because low-income families face more difficulties compared to a year ago, much of it can be attributed to the expiration of pandemic-era aid, especially the expansion of the tax credit for children.

So what can we say about the effects of inflation on low-income households in particular?

What the data seems to say is that these families have becomeThey saw less damage than those with higher incomes.

It is true, as I will explain in a moment, that this conclusion has an asterisk, because not everyone faces the same rate of inflation.

But there is also an asterisk in this asterisk.

First, let’s point out a key fact of the last two years:

This period of rising inflation has also been a period of very tight labor markets.

And tight labor markets often lead to wage compression, i.e. higher wage increases at the bottom than at the top.

This phenomenon is clearly visible in the data from the wage growth monitor of the Atlanta Fed, which, among other things, calculates the annual growth of hourly wages by quartile, i.e. by quarters of the wage distribution.

Recent wage growth has been consistently fastest for the bottom quartiles.

Over the past year, hourly wages in the top or bottom quartile have nearly kept pace with inflation, while remaining well below inflation for the highest-paid workers.

Labor economist Arindrajit Dube has calculated the evolution of hourly wages – by decile rather than by quartile – over a longer period, since the start of the pandemic recession.

concluded that the 40% real wages of the most disadvantaged workers have increased.

A slightly different measure comes from Realtime Inequality, run by economists at the University of California, Berkeley, which estimates changes in real factor income.

Unlike hourly wage estimates, these figures are affected by changes in employment and the number of hours worked; They also include non-wage income, such as entrepreneur profits and investment returns.

But they tell much the same story: of significant gains for the bottom half of the income distribution since January 2021.

It is true that the top 10% also did well, likely reflecting higher profits.

But then again, the lowest paid workers appear to have done relatively well against inflation.

So it’s a myth LThe idea that inflation hurts low-income families most?

Well, like I said, there’s an asterisk here.

We typically measure inflation using the consumer price index, which tracks the cost of goods and services purchased by the average household.

But the lowest-income households spend an above-average share of their income on food and energy, which are also the categories that have recently experienced the highest inflation.

My rough calculations suggest that even accounting for these food and energy costs, the lowest-income households did better, not worse, than others, at least in terms of the effects of inflation.

But this difference is somewhat attenuated.

And there is, as I’ve also suggested, an asterisk within the asterisk.

What we are really discussing is US policy, and the dramatic rise in food and energy prices is not the result of US policy nor is it likely to be significantly affected in the future.

Let’s put it like this:

If you want to blame the president for high food prices, the president is called to blame Vladimir Putin.

None of this says the Fed shouldn’t be trying to reduce inflation.

But it shouldn’t invoke the plight of the poor as a reason to limit money.

If anything, monetary tightening, by causing more flexibility in labor markets and therefore higher unemployment, will disproportionately hurt lower-paid workers.

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