Sunday, December 23, 2007

Different Market Baskets for Different Income Levels

I keep reading stories about food pantries being under particular pressure this year. The stories would be more helpful if they could explain explicitly why the food stamp program (perhaps the most successful anti-poverty program in the US) isn't sufficient to prevent this. We do know that not everyone eligible for food stamps uses them, but this has always been true, and so wouldn't explain a change in demand at the pantries; we need to look elsewhere for an explanation.

My suspicion is that an accurate measure of CPI would vary by income group. The most obvious example is that low income people spend a higher fraction of income on heat, electricity and transportation than higher income people. Even if the entire CPI is flat, if the energy and transportation sectors see large rises in prices, it will likely have a particularly large impact on the bottom quintile of the income distribution, and hence cause real incomes within this group to fall. Of course, gas and heating oil prices gave risen a lot over the past couple of years.

When I look at the BLS web site, I don't find anything about different market baskets for different income classes--I do wonder if there is something out there.


Ken Houghton said...

If the lack of use were proportionate, there would be greater nominal demand at food pantries at any downturn in employment.

More directly, though, you assume that the transition to receiving food stamps is fairly seamless. The odds are good that part of the increase is a processing issue, leading to greater lags. (Overoptimistic budgets that ran out of funds for food stamps in, say, October might also be a factor.)

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