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Economic Brief
July 2022, No. 22-25

Do Black Households Face Higher and More Volatile
By Munseob Lee

Inflation affects different households in different ways. I use detailed data on
spending in retail outlets by Black and White households in the U.S. and study the
racial inflation disparity. I find that Black households experienced slightly higher
and significantly more volatile inflation in consumer goods from 2004 to 2020
compared to White households. More than two-thirds of the difference in
inflation volatility can be explained by the fact that Black households are
disproportionately more likely to consume goods with volatile prices.
This is the first article in a series by Munseob Lee, Claudia Macaluso and Felipe Schwartzman on
price volatility and how it can vary among families of different demographics.

It is often assumed that inflation affects all households the same. But recent measurements
of inflation inequality show this is far from true. In this article, I provide evidence from
spending in retail outlets over the period 2004-2020 that Black households in the U.S. faced
higher and more volatile inflation than White households.

Measuring Inflation for Black and White Households
I start by measuring price indexes for Black and White households using a standard price
index — the Laspeyres price index. This index is used to measure the economy's general
price level and cost of living, and it has two components:
The consumption basket at the base period
The price change from the base period to the observation period
To construct race-specific price indexes, we need data on race-specific consumption basket
and price changes, which are not readily available. To overcome this measurement
challenge, I use detailed data on household spending in retail outlets to analyze how
average prices for purchases changed for Black and White households.

The data represent a longitudinal panel of about 60,000 U.S. households that continually
provide information about what products they buy and when and where they make
purchases. Race is self-reported by households by one of four options: White, Black, Asian
and Other. Most households (82.2 percent) identified as White, and 10.0 percent of
households identified as Black. Figure 1 shows price indexes in consumer goods from 2004
to 2020 for Black and White households.

Black households started facing higher inflation rates than White households during the
Great Recession in 2008. The gap has persisted, although it narrowed after 2014. At least
the early phase of the COVID-19 pandemic, the gap didn't increase further.

Black Households and Inflation Volatility
The next question is whether Black households faced more volatile inflation. Price volatility
makes it difficult for households to evaluate how much their money will buy from period to
period. So, price stability is of special importance to households that may rely on regular
paychecks for necessary purchases.

A recent article reported that the typical Black family has $1,500 in liquid savings, while the
typical White family has more than five times that amount. The typical Black family also
does not have enough savings to avoid costly borrowing or missed payments when
unexpected events arise, which makes them especially vulnerable to inflation volatility.
From the price index, we can calculate the growth rate of price (which is the inflation rate)
for every quarter. The average quarterly inflation rates from 2004 to 2020 were 0.82
percent for Black households and 0.81 percent for White households, as shown in Figure 2.
Thus, Black households did face higher inflation, but the difference was quantitatively small.

However, they faced substantially more volatile inflation in consumer goods. The standard
deviation of inflation rates over the period 2004-2020 was 0.84 for Black households and
0.74 for White households. In other words, Black households faced 13.5 percent higher
inflation volatility, making it more difficult to predict and recalibrate their consumption and

Additional Research on Inflation Volatility and Black

This finding on higher inflation volatility is consistent with my working paper "Minority
Unemployment, Inflation and Monetary Policy," co-authored with Claudia Macaluso and
Felipe Schwartzman. In that paper, we examined whether Black households were more
exposed to inflation fluctuations than White households.
The Bureau of Labor Statistics produces official U.S. inflation statistics and Consumer
Expenditure Survey microdata, which allow us to calculate race-specific consumption
baskets. However, because the price data are collected from stores rather than households,
we cannot calculate race-specific price changes.
Despite this limitation with price changes, we could calculate race-specific inflation volatility
for the entire sector from 1998 to 2020 by using race-specific consumption baskets. We
found that Black households faced 8 percent higher inflation volatility on average than
White households, which is consistent with the result in Figure 2. The two findings are
complementary: This article exploits race-specific price changes in consumer goods that
account for around 30 percent of household expenditure, while the working paper's
calculation covers the entire economy with a longer time span.

Shares of Impacts on Inflation Volatility
Because the price index I constructed has two components — race-specific consumption
baskets and race-specific price changes — I can decompose the difference in inflation
volatility that comes from these components by constructing a hypothetical price index that
uses race-specific consumption baskets and common price changes. Figure 3 shows that 69
percent of the different inflation volatility came from different consumption baskets.
Different price changes also contributed to the gap, but those were quantitatively small.

In other words, Black households are disproportionately more likely to consume goods with
volatile prices. For example, Black households allocate their expenditure more on necessary
goods like eggs and flour that exhibit higher price volatility. On the other hand, White
households allocate their expenditure more on luxury goods like pet care and wine that
show lower price volatility.

Income Differences and Inflation Volatility
Income differences explain some of the variation between Black and White households. My
2020 publication "Cost of Living Inequality During the Great Recession" — co-authored with
Penn State University professor David Argente — constructed income-specific price indexes
for the period 2004-2016. We found substantial differences in inflation experienced across
income groups during the Great Recession. The differences in annual inflation between the
lowest and highest quartiles of income distribution were as follows:
0.22 percentage points for 2004-2007
0.85 percentage points for 2008-2013
0.02 percentage points for 2014-2016

That is, the gap arises at the onset of the Great Recession, grows moderately during the
subsequent recovery and stabilizes after 2014. This is precisely when variables such as
output, household income and employment reached their prerecession levels.
One significant reason that inflation inequality grows during recessions and shrinks during
expansions is that low-income households devote a higher share of their income to
purchasing necessities. The prices of these goods tend to increase more than prices of
discretionary or luxury goods during recessions. Thus, low-income consumers have a much
more difficult time responding to rising food costs at the grocery store.
We identified three ways people adjust to food inflation, and all three are much more
difficult if you are a lower-income household:
Shopping at a cheaper store: Lower-income households are often already shopping at
the cheapest nearby supermarkets.
Using coupons: High-income households are more likely to use coupons during high
inflationary periods because low-income households may lack the time to gather and
use coupons effectively.
Trading down to lower-quality foods: Low-income households naturally have little room
to maneuver.

In sum, I found that Black households experienced slightly higher and significantly more
volatile inflation in consumer goods from 2004 to 2020 compared to White households.
More than two-thirds (69 percent) of the difference in inflation volatility can be explained by
the difference in consumption baskets: Black households are disproportionately more likely
to consume goods with volatile prices.
The increased overall inflation currently being experienced is generating pressure to
improve inflation measurement. Because the digital revolution has given rise to vast new
data sources (such as the one used in this article), statistical agencies around the world are
now collecting price and quantity data at granular level with high frequency. In May, a
report by the National Academies of Sciences, Engineering and Medicine called on the
Bureau of Labor Statistics to publish inflation by income.
Given the challenges minorities face in the U.S., I believe that increasing our ability to
measure inflation by race would also be extremely informative.
Munseob Lee is an assistant professor of economics at the University of California San
Diego School of Global Policy and Strategy. Claudia Macaluso is an economist and Felipe
Schwartzman is a senior economist in the Research Department at the Federal Reserve
Bank of Richmond. Researcher's own analyses calculated (or derived) based in part on data
from Nielsen Consumer LLC and marketing databases provided through the NielsenIQ

Datasets at the Kilts Center for Marketing Data Center at The University of Chicago Booth
School of Business. The conclusions drawn from the NielsenIQ data are those of the
researcher and do not reflect the views of NielsenIQ. NielsenIQ is not responsible for, had
no role in, and was not involved in analyzing and preparing the results reported herein.
To cite this Economic Brief, please use the following format: Lee, Munseob. (July 2022) "Do

Black Households Face Higher and More Volatile Inflation?" Federal Reserve Bank of
Richmond Economic Brief, No. 22-25.

This article may be photocopied or reprinted in its entirety. Please credit the author, source,
and the Federal Reserve Bank of Richmond and include the italicized statement below.
Views expressed in this article are those of the author and not necessarily those of the Federal
Reserve Bank of Richmond or the Federal Reserve System.

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