There's more good news on inflation. Americans may have a hard time believing it.

By Hannah Erin Lang

Purchasing power for the average household actually increased from 2019 to 2023, a government report found. But higher earners are still coming out on top.

There's some good news on the inflation front - but it's likely to offer little comfort to Americans still smarting from years of high prices.

A new report from the Congressional Budget Office released this week shows that inflation may have had less of an impact on households' bottom lines than months of sticker shock on everything from Big Macs to daycare might suggest.

The agency's analysis took a look at a typical household's 2019 "consumption bundle": the goods and services representing a year's worth of purchases pre-pandemic.

Then, researchers analyzed how much households would pay for that same consumption bundle in 2023 prices, and how much their income rose or fell over the same period.

On average, purchasing power for households increased over that period, the agency found.

"By CBO's estimate, aggregate income grew more than prices did between 2019 and 2023," the report states.

The trend did vary by income group, and the highest-earning households saw their purchasing power rise the most.

The portion of household income required to purchase the same bundle of goods and services decreased by 2% for the lowest-earning quintile of households, and by 6.3% for those in the top group.

That echoes recent concerns of a so-called "K-shaped economy" where affluent consumers are faring well, as lower earners are left behind.

The inflation rate has fallen substantially from historic heights in 2022 but has remained stubbornly above the Federal Reserve's target of a 2% year-to-year increase in prices. On Wednesday, the Labor Department reported a lower-than-expected rate of 3.4%, easing fears that price increases might be revving up once more.

Households' purchasing power is impacted both by rising costs and changes in income, the CBO report noted - and the influence of each factor varied by income level.

For example, prices of the typical 2019 consumption bundle increased more for lower-income households than it did for wealthier consumers.

That's likely because fixed expenses - particularly food and energy, where prices have surged over the last several years - make up a bigger portion of those households' budget.

"Conversely, incomes available to pay for that consumption bundle increased by more for higher-income households than they did for lower-income households over the same period," the agency said.

Still, low-income consumers have also seen their earnings rise over the past several years. Pay gains for the country's lowest-paid workers outpaced those of any other group from 2019 to 2023, a recent report from the Economic Policy Institute found.

Read more: The lowest-paid U.S. workers are seeing their wages surge faster than any other group of earners

Because the CBO analysis looked only at the typical bundle of goods and services purchased in 2019, the analysis doesn't take into account how household spending habits may have changed as a result of the pandemic.

But many Americans have admitted to spending more in some areas, and cutting back in others, post-COVID. Some consumers splurged on travel, concert tickets and other experiences that disappeared entirely during lockdowns. Others have dialed back on dining out, pressuring bottom lines at companies like McDonald's and Red Lobster.

Read more: Financial experts told consumers to stop 'wasting' money eating out. They're finally listening - and companies are rattled.

Still fed up with inflation

The CBO's finding isn't likely to offer much reassurance to the average American, who is often focused much more on absolute price levels than how much their pay may have increased relative to prices, economists say.

"People don't have the time to write this all down in paper and pen," said Michael Walden, an economist and professor emeritus at North Carolina State University. "They just get a sense."

That's translated to a lingering economic pessimism among consumers. A preliminary reading of the University of Michigan's consumer sentiment gauge fell to a six-month low on Friday, primarily due to negative inflation expectations.

Frustration with high prices is posing a political headwind for President Joe Biden ahead of the general election in November. Americans' trust in Biden's economic stewardship has fallen to some of the lowest levels measured for any president since 2001, according to a Gallup poll.

We want to hear from readers about how increasing costs and a changing economy are affecting your life. If you'd like to share your experience, write to readerstories@marketwatch.com. A reporter from our team may be in touch.

-Hannah Erin Lang

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05-17-24 0600ET

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