How stressed are U.S. households about higher prices, and what strategies are families using to cope?

A new field note from researchers in the Federal Reserve Bank of Boston’s Regional & Community Outreach department uses national survey data to answer these questions. The authors find that while inflation has declined dramatically over the past two years, many Americans remain very concerned about prices.

“Concern (about) future price increases has decreased over the past few years – but not by as much as we may have anticipated, given how much inflation has come down,” said co-author Michael Evangelist, a senior policy analyst in the department.

The note, called “Household perceptions of price changes and coping strategies,” found that income, education, and recent job loss were key factors in predicting how stressed households are by price increases. These factors also influenced how they cope with rising prices, such as by using loans or taking on more credit card debt.

Note co-author Amy Higgins, a research associate at the Boston Fed, said it’s critical for the Bank to have a deep understanding of how households are dealing with higher prices.

“If households can’t fully participate (in the economy) due to things like higher prices, inflation, or unemployment, then we need to understand what’s going on … in order to strengthen the economy overall,” she said.

Inflation versus price levels: What’s the difference?

Inflation measures the rate at which price levels are increasing. So, falling inflation doesn’t mean prices are dropping, Higgins said.

“It just means that the rate at which prices are increasing has slowed,” she said.

For the note, the authors used data collected by the U.S. Census Bureau’s Household Pulse Survey from September 2022 – May 2024. The bureau released the survey multiple times during this period and generally had more than 50,000 respondents for each wave. The authors analyzed responses from 20 survey waves.

In June 2022, inflation rose to 9%, a 40-year high, the authors wrote. That means this was the first time many adults experienced a period of high inflation, Evangelist said.

The authors found that even though inflation decreased to about 3% by June 2023, respondents’ perceptions about past price increases and concerns over future increases did not drop as quickly.

Survey data shows that as of May 2024, close to 60% of respondents remained concerned about price increases. The authors said it will take time for people to “adjust to the reality that goods and services cost considerably more than they did three years ago.”

Most respondents are still concerned about future price increases

The authors studied how respondents coped with price increases and found that the responses varied by differences such as income and education.

For instance, they found that respondents with the highest income and education levels were the least likely to believe that prices had increased recently and to be concerned about future price increases. Among respondents who did believe that prices had increased during this period, about 45% reported being stressed about it in the more recent survey waves.

Households reported becoming more likely to borrow from family and use savings to cover their spending.  They also reported increasingly using credit cards and taking out loans to meet spending needs in 2023. Data from the Federal Reserve Bank of New York shows credit card delinquency rates increasing, particularly among people under 40, the authors wrote.

Rising delinquency rates are a key concern if credit card usage and debt continue to increase, Higgins said. Delinquency rates refer to credit card users who are at least 30 days behind on payments. Higgins said that not only can delinquency incur higher debt costs, it can also impact people’s financial standing through their credit scores. 

Recent job loss, income levels are key indicators of stress

Evangelist and Higgins analyzed how stress related to price increases and credit card usage differs depending on gender, age, race, income, and other factors using survey data from December 2022 – October 2023.

They said that concern and stress related to price increases were higher than average among members of Gen X and millennials. That’s likely due to family obligations like supporting children, worrying about retirement, and similar financial stresses, Evangelist said.

The authors reported that education, income, and age were also the key variables that impacted respondents’ use of credit cards and loans to cope with rising prices. For example, millennials and Gen Z were more likely than older generations to use credit cards. And those in the middle of the education and income spectrums were more likely to rely on credit cards and loans than those at the lowest ends.

But even after adjusting for other characteristics, they found that people with a recent job loss were more likely than any other group to use these coping methods.

“It’s a reminder that these periods can be painful, and not all people are experiencing the economy in the same way,” Evangelist said.

Read the field note on bostonfed.org.