Rising household energy costs affect lower-income and non-White residents most

More than 1 in 10 Ninth District households have reported struggles meeting their energy needs at some point in the last two years 

By Erick Garcia Luna. He is a Minneapolis Fed regional outreach director. Excerpt:

"The impact of high energy costs was felt unevenly across district states, with Montana residents most affected according to census data, followed by South Dakota, North Dakota, Wisconsin, and Minnesota. For instance, almost 10 percent of Minnesota households reported having struggled to pay their bills, while the share for Montana was almost 3 percentage points higher. Shares for North Dakota, South Dakota, and Wisconsin circled around 11 percent. Across all states, people more commonly chose to give up some basic consumption to avoid falling behind on their energy bills.

Lower incomes, fewer choices

Unsurprisingly, income was a factor in how households experienced and responded to higher energy costs. An average of three-quarters of households experiencing challenges with their energy bills had annual incomes under $75,000, and half had less than $50,000.

A considerably larger share of households with annual incomes under $25,000 have consistently been struggling with energy costs compared with those of higher incomes.

For families toward the bottom of the income spectrum, budgets often lack the elasticity for substitutions, so it comes as no surprise that the primary difficulty for those with less than $35,000 in annual income is their ability to pay. As incomes get larger, challenges lessen, and difficulty to pay seems to level off with the ability to substitute for other goods or to sacrifice some amount comfort in their homes.

With mounting budget pressures, struggling households have increasingly sought help. A report this January from the National Energy Assistance Directors’ Association highlights the highest level of applications for the Low Income Home Energy Assistance Program in at least a dozen years. According to the association, the number of households receiving support to meet their energy needs is up by approximately 1.3 million nationwide, the largest 12-month increase in 13 years.

Racial disparities

Non-White, and in particular Black and Hispanic families, have been disproportionately challenged; 28 percent of Black and 18 percent of Hispanic households reported difficulties paying their bills, respectively almost triple and double the share of White households.

As widespread inflation competed for people’s shrinking budgets, data show an increasing share of households reducing the purchase of basic items, like food and medicine, in order to pay their energy bills. About 1 in 10 White households found themselves having to make those substitutions. For Black and Hispanic households, however, that share was 3 and 2.5 times higher, respectively. Significantly larger shares of Black and Hispanic households also reported having kept their residences at unsafe temperature levels.

While recent reports suggest energy prices may be cooling, a period of widespread inflation has bruised the finances of many district households. Some have made difficult choices to meet their basic needs; others didn’t have much to choose from. For several, and especially for lower-income and non-White households, reprieve may not be immediately felt."