A new study says Tennessee is the third hardest hit state in the country from rising inflation as the lower income and higher sales tax rate in Tennessee combine to create more pinch in the pocketbooks of Volunteer State residents.
Merchant Maverick, a comparison and referral website that reviews small business software and services, ranked all 50 states for the effect of the surge in prices on consumers and ranked Louisiana, Florida, Tennessee and Georgia, in that order, as the hardest hit states by inflation this year.
Inflation has soared over the past year at its fastest pace in more than 40 years, with rising costs negating most Americans' pay raises. From May 2021 to May 2022, the Bureau of Labor Statistics said the Consumer Price Index increased 8.6%, the largest 12-month increase since the period ending December 1981.
"With costs spiking in every category, from food and beverage to recreation, household budgets in the Volunteer State are getting squeezed from all angles," Chris Motola, data projects editor for Merchant Maverick, said in a report released Tuesday.
Tennessee and Louisiana are tied for having the highest sales tax rates in the country with a combined state and local average tax of 9.55% on most goods and services. Tennessee is among 13 states that do not exempt food from its sales tax rate, although the sales tax rate on groceries is slightly lower than for most other merchandise. As prices quickly rise, sales tax burdens are also increasing faster than taxes on income or property.
During the pandemic, more people also moved to Chattanooga, creating more demand for housing and pushing up rental rates and home prices. A new Zumper National Rental Report said the monthly rent for a typical two-bedroom apartment in Chattanooga is up 21.7% compared with a year ago, rising to $1,400 a month.
And even with lower average electricity prices than most of the country, the Tennessee Valley Authority is still boosting its delivered price of power next month by more than 18.2% from what it charged a year ago to cope with a 123% jump in its natural gas costs.
Bill Rush, the new executive director of Metropolitan Ministries in Chattanooga, sees the effect of rising inflation every day from those seeking assistance to pay their rent, food or utility bills.
"A lot of people are living paycheck to paycheck, and the kind of rent rate and price increases we're seeing are outside of what they are able to absorb," Rush said in a phone interview. "For a lot of people who are on Social Security or disability programs or have only a modest job, these price increases can really throw their budget out of whack. They are really struggling."
Where consumers are feeling inflation the most
10. South Carolina
Source: Merchant Maverick report on “The 10 States Where Inflation is Hitting Consumers the Hardest.”
Rush said there is probably three or four times more demand for assistance than what Metropolitan Ministries can now afford to provide.
Tennessee has the seventh lowest median income of all 5o states at $56,627. When inflation is high, everyone pays the price, but research suggests lower-income families suffer the most.
Bill Fox, director of the Boyd Center for Business and Economic Research at the University of Tennessee in Knoxville, said in a phone interview that lower income households spend a bigger share of their income every month, and they tend to devote more of their paycheck toward paying for the goods and services that are increasing the most right now, including gasoline, food and rent.
"People who are lower-income are going to be impacted more by inflation," he said.
Homeowners are not immediately affected as much in the current inflationary cycle as renters who are facing higher monthly housing costs, Fox said.
With unemployment hovering at near-record lows, however, Fox said more people are able to find work, and in the competitive labor market, some of the biggest wage increases have been realized by those working to clean hotel rooms, drive trucks or staff local restaurants.
But Rush said price increases for many families are outpacing wage gains.
Inflation hits home
* Rental rates for an average two-bedroom apartment in June 2022 are up 21.7% since June 2021.
* Chattanooga electricity prices in July 2022 will be up 18.2% compared to July 2021.
* At-home food costs were up 11.2% from May 2021 to May 2021.
Sources: Zumper National Rent Report, EPB and U.S. Bureau of Labor Statistics.
"People may have gotten a $2-an-hour raise, but their rent is up $300 a month, food and utilities are more expensive and they're having to pay twice as much to buy gas for their car just to get to work," Rush said. "People at the bottom end of the wage scale aren't working remotely, and they are less likely to own their own home or have enough savings to get through a tough time."
Southern states are also victims of their own success by drawing more residents during the pandemic, which has tended to bid up housing and rental rates more in the South than in other parts of the country.
"Ironically, those left behind in the Northeast appear to be experiencing lower pricing pressures for most goods and services than elsewhere in the country," Motola said. "Despite being home to generally higher prices pre-pandemic, the lower rate of inflation and higher household incomes are helping to insulate New England, New Jersey and Pennsylvania from some of the worst effects."
Contact Dave Flessner at email@example.com or at 423-757-6340. Follow on Twitter at @dflessner1