PERSONAL INCOME DATA: Inflation Eats Away at Incomes

By SBE Council at 31 March, 2022, 12:36 pm

by Raymond J. Keating –

The latest personal income report from the U.S. Bureau of Economic Analysis provides another sobering reminder of how inflation is reducing incomes.

For February, personal income increased by 0.5 percent. However, that turns negative once you consider that PCE (personal consumption expenditures) inflation registered 0.6 percent.

And over the past year, PCE inflation registered a raging 6.4 percent.

On the consumption front, real personal consumption expenditures sank by 0.4 percent in February.

And real personal disposable income – that is, personal income less personal current taxes adjusted for inflation – declined by 0.2 percent.

As SBE Council has noted before, real per capita disposable income is the most important measure of income, given that this is the money from which individuals are able to save, invest and consume. Although, it also must be noted that even this measure doesn’t fully account for the tax burden faced by individuals, as current taxes do not include residential property taxes, sales taxes, Social Security taxes and Medicare taxes. Nonetheless, this is the beast measure that we have for after-tax income.

As noted in the above chart, real per capita disposable income has been declining since July 2021, and the February 2022 level registered its lowest level since March 2020, at the start of the pandemic, stands just barely above the February 2020 pre-pandemic level.

Unfortunately, while inflation eats away at incomes, the Biden administration wants to worsen the situation by raising income and capital gains taxes. That would further reduce disposable income, again meaning fewer resources would be available for investing in new and expanding businesses, and for consumption.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.