WASHINGTON, March 9, 2022 /PRNewswire/ — Worry about current inflation misses the point, according to new analysis from the Ludwig Institute for Shared Economic Prosperity (LISEP), which indicates that over the past 20 years, rising consumer prices have hit middle- and low-income households much harder than the consumer price index suggests.
LISEP today published a white paper announcing his new True Cost of Living Index (TLC), a measure of the price changes of the minimum adequate needs required to maintain a basic standard of living. While the CPI bases its stated inflation rate on a diverse consumer basket – including items like rental cars and hotel rooms, which are of little relevance to middle- and low-income families – TLC focuses on the basics: housing, food, health care, childcare, transportation, technology, and personal care items, expenses that eat up nearly the entire budget of most U.S. households .
The LISEP analysis revealed that while the CPI remains an excellent measure of headline inflation, it is insufficient to determine the impact of rising prices on middle and low income families. Since 2001, the TLC has increased almost 1.4 times faster than the CPI, 63.5% against 46.2% for the CPI.
“Rising prices are impacting every household in the country, but what many policymakers may not realize is that those in the middle or bottom of the income scale have been very hit hard by inflation long before today,” said the president of LISEP. Gene Ludwig. “The CPI only tells part of the story, as the inflation reported by the government is insufficient to measure how much these middle and low income households are suffering. The fact is that the price of bread and milk has grown much faster than luxury cars over the past 20 years.”
Ludwig went on to note that this underestimation of cost-of-living increases over the past 20 years can have serious repercussions for American working families, with adjustments in employment contracts, pension benefits and government payments often linked to the CPI.
“The pandemic and supply chain issues have recently drawn attention to inflation,” Ludwig said. “But in reality, the TLC reveals that the cost of living for working-class families has been steadily rising for at least two decades. Families with two full-time middle-class jobs need to going into debt just to provide for the most basic standard of living.”
By analyzing only these basic elements, LISEP has found that since 2001:
- Housing costs rose 149%, almost three times the 54% reported by the CPI housing index;
- Adequate minimum health care needs are up 157%, compared to 90% for the CPI;
- The TLC shows that the cost to a family of meeting minimum technology needs (phone, internet connection) has increased by 112% overall, while the CPI reports that telephone services have decreased by 7% and computer services. information of 66%.
In a LISEP case study, a single-parent household with $47,684 in earnings must support $6,006 indebted just to meet minimum sufficient needs.
“Failing to develop policy that recognizes and addresses the needs of working American families will ultimately have disastrous consequences, both socially and economically,” Ludwig said. “The sooner we recognize how unaffordable life has become in America, the sooner we can fix it.”
The full TLC report is available at https://www.lisep.org/costs.
Announcing the launch of the real cost of living (TLC) measurement, LISEP published the white paper “Determining a More Accurate Cost of Living for Median- and Low-Income American Families” (Abridged Version here). TLC assesses a set of minimum adequate needs that a household needs to function: housing, medical care, transportation, food, childcare, technology, and miscellaneous (e.g., clothing and personal care items) that takes into account size household size (the eight household sizes range from one to two adults and zero to three children) and the relevant census region (northeast, midwest, south, and west). The TLC follows the evolution of the price for minimum adequate needs over time.
In comparison to the TLC, the Consumer Price Index (CPI) measures the rise in prices. The CPI serves better as a measure of inflation than a measure of the cost of living due to the inclusion of luxury items and by only including the urban population, among other issues.
The Ludwig Institute for Shared Economic Prosperity (LISEP) was created in 2019 by Ludwig and his wife, Dr. Carole Ludwig. LISEP’s mission is to improve the economic well-being of middle- and low-income Americans through research and education, and seeks to advance the dialogue around policy solutions to improve the well-being of all Americans.
On Gene Ludwig
In addition to his role as President of LISEP, Gene Ludwig is the founder of the Promontory family of companies and Canapi LLC, a fintech venture capital fund. He is the CEO of Promontory MortgagePath, a technology-based mortgage management and solutions company. Ludwig is the former Vice President and Chief Comptroller of Bankers Trust New York Corp., and served as Comptroller of the United States Currency from 1993 to 1998. He is also the author of the book The fading American dream, which studies the economic challenges faced by low- and middle-income Americans. He left in September 2020 by Disruption Books. On Twitter: @geneludwig.
SOURCE Ludwig Institute for Shared Economic Prosperity