Inflation is a key indicator of the health of the economy. When prices increase faster than wages and other sources of income, purchasing power decreases and households struggle to make ends meet. This is especially challenging for households that are in poverty or who are ALICE — Asset Limited, Income Constrained, Employed, with income above the Federal Poverty Level (FPL) but below the cost of basics included in the ALICE Household Survival Budget.

The ALICE Essentials Index measures change over time in the cost of the household essentials in the ALICE Household Survival Budget: housing, child care, food, transportation, health care, and basic technology. The standard measure of inflation in the U.S., the Bureau of Labor Statistics’ Consumer Price Index (CPI), tracks a much larger basket of over 200 categories of goods and services — including items that financially insecure households can’t afford on a regular basis, like full-service meals at restaurants, major appliances, travel, and jewelry. Tracking costs overtime using the CPI alone can conceal important changes in the costs of household essentials.

Nationally, the ALICE Essentials Index has outpaced the broader CPI since 2007. Costs for both measures increased at a faster pace following the pandemic. Between 2021 and 2024, the ALICE Essentials Index increased at an annual rate of 5.6% compared to 5.0% for CPI — both much faster than the annual rates from 2007 to 2019 (2.7% annual increase for the ALICE Essentials Index and 1.8% for CPI).

The Cost of Basics is Increasing Faster Than Overall Inflation

Inflation Indices, United States, 2007—2026

Note: Inflation index scores provide a way to summarize complex data and track changes in costs over time using a numeric scale. The baseline for CPI was set at 100 in 1982. Compared to that baseline, CPI reached 207 in 2007, meaning that prices were 107% higher than in 1982. To compare the ALICE Essentials Index to CPI, the ALICE Essentials Index is set to the 2007 CPI value of207. With this standardization, Figure 4 shows how the change in these two measures compares over time. In the text, keeping with convention, we report the percent change in each index from one year to another. The ALICE Essentials Index rates for 2025 and 2026 are projections. CPI 2026 is preliminary (based on data through February 2026).

ALICE Essentials Index, 2007–2026; Bureau of Labor Statistics—Consumer Price Index, 2007–2026

Housing and food are driving cost increases. Housing and food are the largest components of the ALICE Essentials Index. They are also growing the fastest, driving the overall increase in the ALICE Essentials Index. From 2007 to 2024, the cost of rental housing increased by 99% and the cost of food at home increased by 38%. But all components increased substantially — family child care by 74%, employer-sponsored health care and out-of-pocket costs by 71%, and transportation by 34%. Basic technology was added to the Index in 2021 and increased by 30% from 2021 to 2024.

Household basics are increasing faster than wages. While wages have risen in recent years, so have costs — and recent wage increases have not been enough to overcome years of falling behind. As a result, many workers still cannot cover household essentials. For example, in 2010, child care workers in the U.S. earned a median wage of $9.28 per hour ($19,300 annually for full-time work), falling $12,763 short of the annual ALICE Household Survival Budget for a family with one adult and one school-age child in a middle-income county — Calhoun County, Michigan ($32,063). By 2024 (latest cost data available), the median wage for child care workers in the U.S. increased by 66%, to $15.41 per hour ($30,050 annually, full-time). Yet the annual Household Survival Budget for one adult and one school-age child in Calhoun County also grew (to $48,816), leaving these essential workers $16,766 short of basic costs.

Household basics are increasing faster than public assistance. CPI is used to adjust many government programs targeted for low-income households, yet it does not provide policymakers with a full picture of who is bearing the brunt of inflation. Because of this, the effectiveness of social insurance programs has been diminished as benefits fall behind the cost of basics. This is especially true for the programs most relevant to ALICE households, including inflation stabilization strategy; tax brackets and credits; annual cost-of-living increases for a range of programs from Social Security to pensions for veterans and civil servants; and the annual increase of the FPL (as well as programs with eligibility based on the FPL, like the Supplemental Nutrition Assistance Program (SNAP) and Medicaid).

For example, each year, Social Security makes a Cost of Living Adjustment (COLA), which is based on the CPI. But because the costs of many of the essential goods and services purchased by households headed by people age 65 and over increase faster than CPI, COLA can’t keep up, contributing to financial instability. Nationally, in 2010, the average Social Security payment was $12,768 annually ($1,064 per month), while the ALICE 65+ Household Survival Budget for Calhoun County, Michigan — near the national average — was $20,786 (a shortfall of $8,018.) In 2024, the average Social Security payment increased to $22,668 annually ($1,767.03 per month), but the Household Survival Budget increased even more, to $32,616 (a shortfall of $9,948), leaving seniors even further behind.

The Cost of Basics is Increasing Faster Than Social Security Payments

ALICE 65+ Household Survival Budget vs. Average Social Security Payments, One Adult, Calhoun County, Michigan, 2010 and 2024

There are variations in costs and changes over time by location. Household essentials are more expensive in urban areas than in rural areas. From 2007 to 2016, costs increased at similar, relatively low rates. After 2016, the cost of essentials began increasing faster in urban areas and continued on that trajectory through 2021. Rates increased substantially in both areas from 2021 to 2026 (projected), but the annual rate was lower in rural areas (3.8%) than in urban areas (4.9%). There are also variations by Census Region: Costs were highest in the West and Northeast with prices increasing at a faster rate in the West, surpassing the Northeast in 2020. Costs were lowest in the Midwest and increased at a slower rate there than in other regions from 2007 to 2026.