Bloomberg Línea — As the Biden Administration put it: the rate hikes by the Federal Reserve must serve their part in curbing price increases that are affecting the economy. This measure has two main objectives: to help the US economy “transition to stable and steady growth, and to bring inflation down,” White House Press Secretary Karine Jean-Pierre said.
According to Bloomberg News, the US central bank raised rates by 75 basis points on Wednesday to a range of 3.75% to 4%, the highest level since 2008, as it extends its most aggressive tightening campaign since the 1980s.
In tune with the latest rate hikes, inflation in the US has slowed down in recent months. According to the US Bureau of Labor Statistics, annual inflation in September was 8.2%, the lowest in seven months, compared to 8.3% in August and 8.5% in July.
Why are Latino households in the US most affected by inflation?
Latino and Black families suffer from what some officials call inflation’s “disparate impact”. According to John C Williams, president and CEO of the Federal Reserve Bank of New York, since 2021 Black and Latino households have faced higher inflation than the US national average.
In a report, the NY Fed stated that, in fact, Latino families have been affected the most by price increases. The main reason, the bank says, is because, on average, Latino families spend a larger amount of their income on products most impacted by inflation.
Which products have seen steeper increases and how does that affect Latino families?
Latino and Black households in the US tend to spend more on items such as food and transportation, which are some of the goods and services most impacted by inflation. Data from the US Bureau of Labor states that the energy index (gas, gasoline and electricity) increased by 19.8% in September. As with general inflation, this index also slowed in September compared to August, when the increase was 23.8%. In September, the cost of food in the US rose by 11.4% and used cars by 7.2%.
The cost of all of these items, the NY Fed says, have surged in recent months due to supply chain issues as a result of global consumption recovery and the effects of Russia’s invasion of Ukraine.
Exposure to recession
US President Joe Biden has warned about a “very slight” risk of recession. But however mild, it could take a toll on communities that are more prone to suffer due to their tight economies. A recession or the perception of one could trigger unemployment in areas that concentrate a higher proportion of Latino workers.
According to a report by lender Wells & Fargo, industries such as construction, transportation, manufacturing and hospitality have a large presence of Latino workers. The close to 62 million Latinos living in the US (more than 19% of the total population in the country) represent 18% of total household employment, said the bank. However, in sectors such as construction, Latinos make up a third of the labor force. Since construction is sensitive to rate hikes, the industry would probably suffer more than others, putting many workers out of a job.
Since construction is sensitive to rate hikes, the industry would probably suffer more than others, sending many workers to unemployment.
Latinos earn less than other groups in the US
With or without rate hikes, price increases or a recession, one fact remains: Latinos make less than other ethnic communities in the US. According to McKinsey & Company, Latinos make just 73 cents for every dollar earned by White Americans. This means that they face uphill situations like obtaining credit, securing competitive mortgages, and getting loans for their businesses, the consultancy said in a report on the economic state of Latinos in the US.
“Latinos struggle with access to food, housing, and other essentials. And their level of household wealth—which directly affects their ability to accumulate and pass on wealth from generation to generation—is just one-fifth that of White Americans,” according to the report.
