February 1, 2016 Reading Time: 2 minutes

Recent changes in your cost of living depend greatly on where you are in your career, education and life.

That’s a key takeaway from my recent research, which we published today in a brief entitled “Average American’s Cost of Living Falls.” Americans’ wages grew faster on average than the Consumer Price Index in 2015 (1.9 percent versus 0.5 percent). But the economy is affecting different kinds of people in different ways.

In the brief, we look at the cost of living for different households by constructing three profiles: an urban renter, a young family, and a retired couple.

We arrive at these profiles by measuring the everyday expenses of these three groups using our Everyday Price Index, or EPI. Our index starts with the CPI, but we then exclude big-ticket items such as housing, cars, appliances, and electronics as well as infrequent purchases like clothes and legal services.

The results underscore the idea that inflation is far from constant across products and impacts different Americans in a variety of ways.

The urban renter’s cost of living rose 2.1 percent in 2015, as opposed to a 1.4 percent decline in the EPI. The main factor in that difference is gasoline and energy costs; the urban renter has far fewer of these expenses, and these items fell in price in 2015.

The retired couple (+0.3 percent) and young family (-1.0 percent) also outpaced the overall EPI due to the importance of healthcare and education in their respective budgets. A table providing a closer look at the weights we put on goods and services in the EPI and profiles used in the brief is available online.

We also take a deeper look at what’s happened to the price of specific goods and services, and find stark differences. Many Americans felt less cost pressure in 2015 from pronounced declines in energy costs, including gasoline (-24 percent) and heating oil (-31 percent). But as anyone with major education or health care expenses knows, those items continued their upward march, including prescription drugs (+3 percent) and college tuition (+4 percent).

The increases in education and health care costs since 2000 have been staggering: prescription drug prices have increased 72 percent and tuition 146 percent during this period, by far outpacing everyday expenses (55 percent) and the CPI (46 percent).

It’s easy to make broad generalizations with economic data, especially when looking at macroeconomic aggregates like inflation. But in doing so, one loses sight of the fact that American households are extremely diverse in their spending behavior and long-term goals.

We hope that our recent research brief adds to the conversation by emphasizing the different paths that prices for various goods and services have taken in recent years, and how that affects different types of households. Overall, Americans’ cost of living has held steady or even fallen in recent years, but those who spend heavily on healthcare or education would reach a far different conclusion.

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Max Gulker

Max Gulker

Max Gulker is a former Senior Research Fellow at the American Institute for Economic Research. He is currently a Senior Fellow with the Reason Foundation. At AIER his research focused on two main areas: policy and technology. On the policy side, Gulker looked at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker was interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy.

Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxg_econ.

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