Two-thirds of Americans Live Paycheck to Paycheck As Inflation Rises

Inflation is showing no signs of slowing down, making it harder for workers to make ends meet. The Consumer Price Index increased 8.3% from a year ago, higher than the 8.1% estimate, according to the U.S. Bureau of Statistics. Although it was down slightly from the March peak, inflation is still growing at the fastest annual pace in about four decades.

Food prices are up at the fastest pace in more than 41 years and the shelter index, which makes up about one-third of the CPI weighting, was up 5.1% on a yearly basis, its fastest gain since March 1991. While wage growth is high by historical standards, it isn’t keeping up with the increased cost of living. When wages rise at a slower pace than inflation, those paychecks won’t go as far at the grocery store and at the gas pump two areas of the budget that have been particularly squeezed.

As of March, close to two-thirds, or 64%, of the U.S. population was living paycheck to paycheck, just shy of the high of 65% in 2020, according to a Lending Club report. Consumers who are struggling to afford their day-to-day lifestyle tend to rely more on credit cards and carry higher monthly balances making them financially vulnerable. 

Overall, credit card balances rose year over year, reaching $841 billion in the first three months of 2022, according to a separate report from the Federal Reserve Bank of New York. At this rate, balances could soon reach record levels amid higher prices for gas, groceries and housing, among other necessities, according to Ted Rossman, a senior industry analyst at CreditCards.com.

WHAT DOES THIS MEAN?

Living paycheck to paycheck has become the dominant way people manage their cashflow in the United States, with close to two-thirds of the U.S. population, 64% or about 166 million adults, doing so in March 2022.