LEGISLATIVE UPDATE - Inflation: The Invisible Tax on Kentuckians

Inflation. It does not discriminate, and its effects can be felt by all - rich, poor, young, and old. When the supply of money in the economy grows faster than the economy itself, inflation occurs, resulting in increased prices and decreased purchasing power for consumers. Simply put, it means you spend more and get less. 

In June 2022, inflation reached a 40-year high of 9.1%. In response, the Federal Reserve gradually raised interest rates to a 23-year high to combat inflation, making it more expensive to borrow money. While the inflation rate has gradually declined since its peak in June 2022 to 2.9% as of July 2024, its effects continue to be pervasive and pernicious. 

According to the United States Joint Economic Committee, the average Kentucky household is paying $962 more per month compared to 2021. Compared to last year, the average Kentucky household needs to spend $170 more per month to maintain the same standard of living. 

One of the places Americans feel inflation the most is at the grocery store each week. Over the past several years, consumers have seen prices increase significantly and are forced to decide which products they deem essential. In the wake of these surges, consumers are often tasked with answering the question: Can I afford this? 

According to CBS' price checker, which measures prices changes nationally in everyday expenses from 2019 to 2024, the price of a dozen eggs rose from $1.20 to $2.72 (126% increase); the price of a loaf of bread rose from $1.28 to $1.97 (54% increase); the price of a pound of ground beef rose from $3.81 to $5.47 (44% increase); the price of cookies rose from $3.50 to $5.02 (43% increase); and the price of a pound bacon rose from $5.88 to $6.83 (16% increase). 

Currently, the average Kentucky household for all households spends around $255 a week on groceries, according to Trace One analysis. Groceries account for 9.2% of Kentuckians' total consumer spending, which is higher than the national average of 8.0%. 

Another core area inflation has affected is housing. CBS's price checker reports that from 2019 to 2024 rent prices rose in both Lexington, from $1,002 to $1,432 (43% increase), and Louisville from $1,025 to $1,406 (37% increase). Additionally, the dream of owning a home has become unattainable for many due to the lack of affordability, resulting in lower rates of home ownership. According to a recent report by Zillow, Kentuckians looking to purchase a home in Louisville would need to earn an income of approximately $77,450 as of January 2024 to comfortably afford it, which is $31,185 more than they needed in January 2020. While the income needed to comfortably afford a home in Louisville, Kentucky, is below the national average of more than $106,000, the increase in income needed over the course of four years is still staggering. 

On top of groceries and housing, other monthly expenses, like utilities and transportation costs, have increased as well. As a result, Americans are finding that they have less and less money to save each month for the future. Retirement for older Americans seems like an uncertainty as many question whether they are financially stable enough to do so comfortably. In fact, a survey conducted by F&G Annuities & Life found that 68% of pre-retirees are thinking about postponing retirement. 

Now, inflation not only impacts individuals; it impacts businesses too. Business owners are faced with cost increases across the board from production to personnel and are forced to grapple with the tough question of whether to increase prices on consumers to maintain profits. 

As a legislator, I recognize the negative impact inflation is having on Kentuckians and am committed to ensuring you keep more of your hard-earned money. In 2022, the state legislature passed HB 8, a measure aimed at gradually eliminating the state's individual income tax. The individual income tax was lowered to 4.5% in 2023 and 4% in January 2024. While the state missed the target to lower the tax in 2025, we are on track to see a cut to 3.5% in January of 2026. Lowering the individual income tax has been made possible through fiscal responsibility- reducing debts and liabilities, limiting borrowing, and building our state budget reserve. As a result of our commitment to gradually lower the individual income tax, more than one billion dollars have stayed in Kentuckians' pockets- where it belongs. 

As always, I can be reached anytime through the toll-free message line in Frankfort at 1-800-372-7181. You can also contact me via e-mail at Timmy.Truett@kylegislature.gov and keep track through the Kentucky legislature's website at legislature.ky.gov.