Inflation Is Eroding the Power of Basic Income Checks in America

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(Bloomberg) — America’s biggest basic-income program is taking a whack from inflation.

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A group of low-income residents of Cook County, Illinois is getting their first $500 checks this week from the $42 million two-year program, which organizers say is the largest-ever such initiative in the US. The idea is to give families a government-funded guaranteed payment every month to help pay for the basics like food, shelter and other living expenses. But with soaring prices for everything from food to fuel, more than 3,000 recipients will find that money won’t stretch nearly as far as when the grants were announced in May. 

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Underscoring the pressure on budgets from inflation, the average American household spent almost $400 a month more in November buying the same goods and services it did a year ago, according to estimates from Moody’s Analytics. 

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“There’s no doubt that a dollar just doesn’t go as far as it once did,” said Natalie Foster, co-founder of the Economic Security Project, which advocates nationally and locally for cash disbursement programs. “Inflation is hurting the lowest income earners around the country.”

Inflation surged to a 40-year high earlier this year, and while the rate has fallen since, consumer prices were still up 7.1% in November from a year earlier. Food prices are climbing even faster, a key challenge for poorer households that spend a substantial share of their income on groceries.

In November, food prices climbed 0.5% from October, while energy costs declined 1.6%, data from the US Labor Department showed. Core inflation — which excludes food and energy — rose just 0.2% in the period.

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Economists have cited excess savings of roughly $2 trillion accumulated by households during the pandemic — thanks to stimulus checks and reduced spending during lockdowns — as a driver of inflationary pressure.

Poverty Line

But lower-income families have already burned through the extra cushion, with holdings of cash held by the bottom one-fifth of the income distribution now lower than in 2019, according to data from Federal Reserve. That factor bolsters the case for guaranteed basic incomes, which are already being experimented with in cities like New York, San Francisco and Los Angeles.

“The amount of money we’re injecting, relatively speaking, is small,” said Sarah Moran, US Country Director at GiveDirectly, which has been handing out grants for over a decade. “We’re targeting it at people who are very, very poor.”

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The additional cash will help keep families from dropping below the poverty line and boost local economies even if higher prices are squeezing purchasing power, said Harish Patel, director of Economic Security for Illinois. Most of the funds will be used for food, shelter and childcare, he added.

Post-Divorce Stability

Chris Santiago, a 37-year- old who works for the Illinois Department of Transportation, said the payments will ease some of the pressure he’s under as a recent divorcee. 

“I’m a single dad with three kids, so it’s definitely going to help us in maintaining that stability post divorce,” he said. “I spend so much of my income toward food.”

In Mount Vernon, New York, where 200 recipients will start receiving $500 a month early next year as part of a yearlong basic-income program, rising food and utility costs are deepening the financial strain for families, said Monica Hughes, the pilot’s manager.

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Most of the basic-income pilot programs designed in the US over recent years came during a generation of low inflation. Now in a high-cost era, program designers may need to rethink the parameters, including adding possible inflation triggers.

Federal Funds

Toni Preckwinkle, Cook County board president, who aims to make permanent the experimental program, isn’t alarmed by rising inflation. She is calling on federal funds to help expand programs nationwide. 

“The federal government really has the resources to make this happen in a really significant way,” she told reporters last month.  

In Tacoma, Washington, Geno Rosario, a 40-year old single father, said food for himself and his kids cost him about $70 to $100 per week when he stared getting the monthly payments from the city’s guaranteed income pilot about a year ago. Now that only covers about three or four days worth of staples. 

“We sadly know that families are losing part of the grants because of inflation,” said Patel of Economic Security for Illinois. 

—With assistance from Shruti Date Singh, Michael Hirtzer and Cécile Daurat.