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05.24.2024 by Tracey Daigle

Inflation vs Income Growth – Who is Winning the Battle

A new report out this month from the non-partisan Congressional Budget Office (CBO) has some interesting data about the comparison between inflation and wage growth. The CBO compared household purchasing power in 2019 and 2023. They used these two years to remove the changes in spending and income due to the pandemic. The CBO compared income to consumption bundles to see what portion of income is needed to purchase the same goods and services in different years. They then looked at the results by income quintile. They found that purchasing power increased for all income quintiles but not equally. The lowest income quintile had the lowest purchasing power increase. The share of their income that was needed to purchase their consumption bundle decreased by 2%. For the highest income quintile, the share of income needed decreased by 6.3%. For the lowest income quintile, inflation was higher on food and energy which accounts for a larger portion of their consumption bundle. For the highest income quintile, their incomes grew at a higher rate, and food and energy are a smaller portion of their spending.

In the figure below, you can see that the share of income needed to purchase the average household’s goods and services has decreased across all income groups. The CBO used both market income which includes labor income, business income, capital income, and other income from nongovernmental sources adjusted to remove the cost of healthcare benefits that people receive. And income after transfers and taxes which adjusts market income for cash payments from the government and taxes. Congressional Budget Office (


Another look at household income and inflation shows that even though it doesn’t feel like it, income has outpaced inflation over the long term. In the chart below you will see income divided into quintiles in 1967 and 2022 per the US Census Bureau. The far right column shows the 1967 income adjusted by inflation per the US Bureau of Labor Statistics CPI inflation calculator to 2022 dollars. It shows that for all income quintiles inflation-adjusted income is higher in 2022 than it was in 1967.

Screenshot 2024-05-23 094012

The data from 1967 to 2022 looks similar to the shorter time period of 2019 to 2023. All income quintiles have outpaced inflation but the lower quintiles have not grown as much as the higher ones. Why does it feel like we are making less now than we used to? That may have much more to do with spending than earning and may be a great article in a future newsletter.

Financial Planning/Investment Strategy Corner:

The Compliance Corner: In this section, we often give great advice and information on financial planning and investment strategy, if I do say so myself 😊. For this week, I would like to explain a client communication limitation that we encounter due to compliance regulations. You may have heard in the news that several large companies have been ordered to pay penalties for recordkeeping failures. In 2022, the SEC fined several large banks including Bank of America and Citigroup a total of $1.1B, and in 2024, the SEC announced more than $81MM in fines to broker-dealers including Northwestern Mutual and Lincoln Financial. As financial advisors, we are mandated to maintain records of all electronic communications. For some forms such as email, it is a relatively easy process. Recordkeeping for some electronic communication forms is more difficult. Messaging apps and texts are not as easily archived especially when employees are using their personal phones. Due to these limitations, we instituted a firm policy to limit electronic communications with clients to email. This means no texting. If you have texted your advisor, you may have been asked to switch to email. The recordkeeping requirements we must follow are the reason for this. We understand that texting is how many of us communicate and we continue to look for ways to add appropriate archiving so that we can add texting as an approved communication method, but we are not there yet. We appreciate your understanding and help with this. | (

Quick Hits:

Memorial Day Weekend is Here! As the unofficial start to summer, Memorial Day Weekend is one of my favorites with parades, BBQs, and some great time outside with friends and family. Here are some ideas: I make the flag cake every year but usually for the 4th of July, it’s fun and very tasty. I will say I use homemade frosting – the canned stuff is not for me 😊. Memorial Day 2024: Seacoast NH and Southern Maine Memorial Day-Maine Memorial Day- New Hampshire Magazine 45 Best Memorial Day Recipes 73 Memorial Day Recipes Flag Cake Recipe

Quotes to Consider as We Head into Memorial Day Weekend:

True heroism is remarkably sober, very undramatic. It is not the urge to surpass all others at whatever cost, but the urge to serve others at whatever cost.” —Arthur Ashe

"We didn't know we were making memories, we just knew we were having fun." — Winnie The Pooh

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