This week the Federal Open Market Committee will meet against a backdrop of sticky inflation stubbornly staying in the 2.5 to 3.0 percent range (depending on the measure) and policy risks from the Trump agenda.

One thing that is beginning to get noticed is that sustained higher inflation does not affect everyone equally. In particular, a while back Eakinomics examined the impact of inflation on the elderly and ended up focusing on the path of medical care inflation. With the help of Max Tingom, Eakinomics revisited the issue and came to a very different conclusion. 

Recall that the Consumer Price Index (CPI) measures the cost of a basket of goods and services. No two people have exactly the same basket, but seniors differ systematically from everyone else in their spending habits. To get a handle on this, the Bureau of Labor Statistics calculates a research consumer price index for those aged 62 and older – the R-CPI-E. The data sources for the R-CPI-E are not as robust as those for the regular CPI, hence the “research” designation. 

The graph (below) shows year-over-year inflation for the entire CPI and the elderly CPI since January 2021. As one can see, overall inflation picked up more quickly and peaked higher than inflation in the CPI-E. But inflation has stayed higher for the elderly over the past three years.

Why? As it turns out, a main culprit is the Fed’s nemesis: shelter inflation. The elderly spend a greater share of their income on shelter than does the population as a whole. The elderly’s share was 40.2 percent in December 2023, compared with 35.2 percent for the CPI as a whole. In short, the affordable housing crisis hits the elderly disproportionately.

Now comes the ironic part. Homebuying tastes of the elderly may be in part responsible for the affordability crisis. Homes are bigger – since the1960s average square footage has almost doubled. Moreover, seniors are staying in these larger homes. According to a recent survey by Redfin, 71 percent of 57- to 75-year-olds reported wanting to age in their current home. Downsizing does not seem to apply to baby boomers, with the emergence of a housing squeeze for younger generations seeking houses.

Once again, a policy puzzle leads to the supply of housing as the key solution. During the campaign there was a brief period where this became an important issue, but there is no evidence that the Trump Administration plans to focus on housing supply. Perhaps it should.