How Inflation Reshaped Real Incomes Across U.S. Income Quintiles Since 2019

Since 2019, the U.S. economy has experienced the fastest inflation in four decades, followed by an unusually strong labor market recovery. Official analyses from the Congressional Budget Office, the Bureau of Labor Statistics, and the Federal Reserve Bank of Cleveland show that inflation did not affect all households equally: lower-income households faced higher price increases for necessities, but they also recorded stronger wage growth, leaving most income groups with net gains in purchasing power by the end of 2024.

Key Numbers

• 4.5 percentage points: cumulative wage growth minus inflation for the bottom 40 percent and middle 40 percent of the income distribution from January 2019 through the end of 2024.
• 3.5 percentage points: approximate net purchasing power gain for the top 20 percent over the same period.
• June 2022: the month when U.S. inflation peaked, according to the Cleveland Fed analysis.
• Bottom 40 percent: the income group that consistently experienced both higher inflation and higher wage growth after the June 2022 peak.
• 2019 consumption bundle: the fixed basket of goods and services used by CBO to compare cost burdens across income quintiles.
• Equivalized income: the BLS method that adjusts household income for household size and composition to compare inflation across groups.
• Food, energy, and rent: spending categories that drove higher inflation for lower-income households because they make up a larger share of their budgets.

Explanation

Inflation measures how much the general price level rises over time. When prices rise faster than incomes, real income—the amount of goods and services a household can actually buy—falls. Since 2019, the U.S. has experienced a sharp inflationary episode, but wages and other incomes also grew, especially for workers in lower-paying jobs. The net effect on real incomes depends on both the inflation rate a household faces and the growth of its income.

Households are often divided into income quintiles: five equal-sized groups ranked from the lowest 20 percent of income to the highest 20 percent. Lower-income households tend to spend a larger share of their budgets on necessities such as food, energy, and rent. When those prices rose rapidly in 2021 and 2022, lower-income households experienced higher inflation rates than higher-income households. The Bureau of Labor Statistics has documented this pattern using equivalized income, which adjusts for household size.

At the same time, the post-pandemic labor market was exceptionally tight, and wage growth was strongest at the bottom of the wage distribution. According to the Federal Reserve Bank of Cleveland, the bottom 40 percent and middle 40 percent of the income distribution ended 2024 with about 4.5 percentage points more cumulative wage growth than inflation since January 2019. The top 20 percent saw a smaller net gain of roughly 3.5 percentage points. In other words, while lower-income households faced higher inflation, their wage gains more than offset it, leading to real purchasing power gains.

Definition

An income quintile is one of five equal-sized groups of households ranked by income. The lowest quintile contains the 20 percent of households with the lowest incomes, and the highest quintile contains the 20 percent with the highest incomes. Real income is nominal income adjusted for inflation, reflecting actual purchasing power. A consumption bundle is a fixed set of goods and services that a household buys; comparing the cost of the same bundle over time isolates price changes from changes in what people buy. Equivalized income divides household income by a factor that accounts for household size and composition, allowing more accurate comparisons of economic well-being across different types of households.

Why It Matters

Understanding how inflation affects different income quintiles is essential for assessing economic inequality and the effectiveness of policy responses. If lower-income households face systematically higher inflation, then measures of average inflation can understate the pressure on the most vulnerable families. Conversely, if wage growth at the bottom outpaces inflation, that can narrow income gaps even when headline inflation is high.

The post-2019 period is a striking example. Headline inflation reached its highest level in decades, but the labor market recovery was also unusually strong for low-wage workers. As a result, the net change in real incomes was not uniformly negative. Policymakers, journalists, and researchers need to look beyond average inflation and average wage growth to see who gained and who lost ground.

Factors Behind the Trend

Several forces combined to produce the divergent inflation and wage patterns since 2019. Pandemic-related supply disruptions, shifts in consumer demand, and rising energy and food prices pushed up the cost of necessities. Because lower-income households allocate a larger share of spending to these categories, their effective inflation rate was higher than that of higher-income households.

At the same time, the labor market recovered rapidly, and employers in low-wage sectors such as leisure, hospitality, and retail faced severe labor shortages. This drove unusually strong wage growth for workers in the bottom 40 percent of the wage distribution. The Cleveland Fed analysis finds that these wage gains were large enough to offset the higher inflation those workers experienced, leaving them with a net increase in purchasing power by the end of 2024.

Methodology

The Congressional Budget Office measures the effect of inflation by calculating how much of a household’s income would be required to purchase a fixed 2019 consumption bundle. This approach holds consumption patterns constant, so changes in the required income share reflect only price changes and income changes, not shifts in what households buy. CBO performs this calculation separately for each income quintile.

The Bureau of Labor Statistics groups households by equivalized income and constructs price indexes that reflect the actual spending patterns of each group. This captures differences in inflation rates driven by different budget shares for food, energy, housing, and other categories. The Federal Reserve Bank of Cleveland combines inflation and wage growth data by income and wage distribution to compare cumulative changes in purchasing power from January 2019 through the end of 2024.

Historical Data

The table below summarizes key developments in inflation and real income dynamics from 2019 through 2024, based on the sources cited.

Year-over-Year Change

After inflation peaked in June 2022, year-over-year price increases slowed steadily. However, the gap between the inflation rates faced by lower- and higher-income households did not disappear immediately. The Cleveland Fed notes that households and workers in the bottom 40 percent of the income and wage distributions consistently experienced higher inflation and higher wage growth than the middle 40 percent and top 20 percent after the peak. This means that even as overall inflation cooled, the relative pattern of higher costs and higher wage gains for lower-income groups persisted through the end of 2024.

Ranking Table

The following table ranks broad income groups by their cumulative wage growth minus inflation from January 2019 through the end of 2024, based on the Cleveland Fed analysis.

Note: The Cleveland Fed groups the income distribution into bottom 40 percent, middle 40 percent, and top 20 percent rather than exact quintiles. The values represent cumulative percentage-point differences, not annual rates.

Timeline

• January 2019: Start of the comparison period used by the Cleveland Fed and CBO.
• 2020: COVID-19 pandemic causes a sharp but brief recession; inflation remains subdued.
• 2021: Inflation accelerates as demand rebounds and supply chains remain disrupted.
• June 2022: Inflation peaks; lower-income households face the largest price increases for necessities.
• 2023–2024: Inflation cools, but wage growth for the bottom 40 percent remains above inflation.
• End of 2024: Bottom and middle 40 percent record a 4.5 percentage-point net gain in purchasing power since January 2019; top 20 percent records about 3.5 percentage points.

Limitations of the Data

These estimates have important limitations. CBO’s fixed 2019 consumption bundle does not account for the fact that households change what they buy when relative prices change. If lower-income households substitute cheaper goods or reduce consumption, the fixed-bundle approach may overstate the welfare loss from inflation. Similarly, the Cleveland Fed analysis uses wage growth, not total household income, so it does not capture changes in employment, hours worked, taxes, or government transfers.

As the Cleveland Fed cautions, higher inflation for lower-income groups was accompanied by higher wage growth, so focusing on prices alone can overstate the erosion of purchasing power.

In addition, the BLS equivalized-income approach relies on survey data that may not fully capture regional price differences or changes in household composition over time. Users should interpret these figures as broad indicators of relative experience rather than precise measures of individual household welfare.

Source & Data Date

Primary sources for this article are the Congressional Budget Office publications An Update About How Inflation Has Affected Households at Different Income Levels Since 2019 and How Inflation Has Affected Households at Different Income Levels Since 2019; the Bureau of Labor Statistics Monthly Labor Review article Examining U.S. inflation across households grouped by equivalized income; and the Federal Reserve Bank of Cleveland Economic Commentary Did Inflation Affect Households Differently? A Look at the Postpandemic Inflation and Wage Growth Dynamics (2025-11). Data cover the period from January 2019 through the end of 2024, with the Cleveland Fed analysis published in 2025 and CBO updates reflecting the most recent available data.