Here's where inflation is hitting the middle class the most

By Weston Blasi

The latest CPI report shows the cost of living rose in December. This is where many households are really feeling the pinch.

Middle-income families continue to struggle with inflation, experts say - and grocery prices have been painful for many.

Financially-stressed middle-class families looking for relief in the latest CPI report probably won't be too happy.

Tuesday's data revealed that the cost of living for Americans ticked higher in December as the consumer-price index rose 0.3% last month, leaving the annual rate of inflation at 2.7%, well above the Federal Reserve's 2% target.

The cost of food has persistently been an area where inflation remains high for families, and the latest data suggests it's getting worse. Prices for food at home and at restaurants each increased 0.7% month over month. What's more, the cost of food at home was up 2.4% year over year, while food at restaurants was up 4.1% from a year ago.

"What the data show is that for many families, price increases in everyday necessities reset their baseline," Primerica CEO Glenn Williams wrote in an email to MarketWatch. "Even if wages have technically kept pace on paper, the feeling of falling behind has become the norm, and that ongoing pressure weighs heavily on confidence about the future."

Unlike some monthly costs like discretionary spending or travel, which aren't needed for day-to-day survival, a family's food budget is not as easily trimmed. And persistent inflation on such necessities puts pressure on consumers - particularly families in middle- or lower-income brackets.

"Even within 'middle income,' our data shows most households feel like their income is falling behind, especially if they spend a higher share on necessities." Williams said. "And pessimism isn't abstract, FSM [Primerica's Financial Security Monitor] shows most respondents describe their feelings about money as 'stressed' (60%) or 'discouraged' (44%), with inflation the top-reported stressor."

Below are some foods that have increased in price over the past 12 months, according to December's CPI report:

-- Coffee: +19.8%

-- Beef and veal: +16.4

-- Candy and chewing gum +10%

-- Frozen fish and seafood: +8.6%

-- Lettuce: +7.3%

-- Bananas: +5.9%

-- Nonalcoholic beverages and beverage materials: +5.1%

On the flip side, some foods that have seen their prices go down over that same period include: eggs (-20.9%), potatoes (-3.4%), frozen and refrigerated bakery products (-2.6%), and butter and margarine (-2.2%).

More CPI coverage: Inflation is not getting much worse but consumers are still getting hit

Rising food prices are just the latest financial dilemma stressing many households as wages have struggled to keep up with inflation and the cost to buy a home in recent years. These pricier grocery bills are coming at the same time that health-insurance costs for many Americans are also expected to skyrocket after Affordable Care Act subsidies expired on Dec. 31, and heating bills have also been soaring this winter. It's all putting pressure on family budgets.

"The reality of it is that we have had five years of middle-income families being underwater," Williams said. "These families are frustrated at their ability to get ahead because of the rise in the cost of living, the lag in wage growth, their inability to save and the increase in their credit-card balances."

When Primerica's Financial Security Monitor first launched in 2020, about 50% of middle-income Americans said their income was falling behind the cost of living. Today, that figure is 69% - the same as last year. "That persistence helps explain why consumer sentiment remains weak even as inflation has cooled," Williams said.

Related: Credit-card rewards are under siege - for everyone but the rich

December's CPI did have some good news, too. While most of the price increases were concentrated in groceries, restaurants, hotels, airlines and recreational activity, the cost of goods - things like pharmaceuticals, cars, electronics, etc. - did not go up again. And the overall price of goods, minus food and energy, remained unchanged for the first time since tariffs went into effect last year.

Drivers can also take respite in gasoline prices dropping 3.4% over the past 12 months, although prices in the overall energy sector haven't eased up. Electricity costs are up 6.7% over the past year, and utilities are up 10.8% (leading to scorching winter heating bills for some). So while driving may be cheaper, heating and electricity are taking up more of families' budgets.

Still, some experts are wary of drawing a clear picture of what's going on in the economy solely from this report.

"The month-over-month CPI numbers were better than expected," Cooper Howard, director of fixed-income research and strategy at the Schwab Center for Financial Research, told MarketWatch. "It's a bit of a mixed bag because of the government shutdown, so there are some distortions that the market will have to sort through."

Indeed, there may be some data-collection anomalies after the Bureau of Labor Statistics missed the October CPI report altogether, which means there was no monthly comparison for the past two months.

Many experts believe that stubborn inflation may keep the Federal Reserve from further lowering rates, which it has previously done at its past three meetings. The odds of a January rate cut are just 2.8%, according to the CME FedWatch Tool.

See: Why Visa and Mastercard are seeing their sharpest stock drops in half a year

-Weston Blasi

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