40-Year High in Inflation Eats Away at Charitable Effectiveness

In March, the Bureau of Labor Statistics (BLS) reported that inflation, as measured by the consumer price index, had risen 8.5% over the past 12 months. This increase in overall prices is the largest since 1981, and it could have profound implications for philanthropy. Just as American households grapple with falling real wages and declining purchasing power due to inflation, the charitable sector faces similar problems: eroding budgets even as demand remains constant. As a result, the effectiveness of each philanthropic dollar is reduced.

BLS also recently released monthly national inflation data. Price increases for gasoline, shelter and food were the biggest drivers of cost increases on all items. Energy prices spiked 32% over the past year and food prices shot up 8.8%. Price increases though were not limited to the energy and food sectors, which tend to be volatile, but spread to every major category of consumer goods and services. Prices have been on the rise since the end of 2020, but they spiked in the summer of 2022, following passage of the American Rescue Plan, the massive, nearly $2 trillion pandemic-related federal spending bill. Energy prices also accelerated following Russia’s invasion of Ukraine.

Just as inflation impacts most households every day, it also places burdens on the shoulders of the charitable community. Inflation is considered a tax on households because consumers can purchase fewer items for the same amount of money. While wages are rising at their fastest pace in two decades, they are still not keeping pace with inflation. Real wages, or inflation-adjusted wages, fell by 2.6%.

Inflation affects the charitable sector in a number of ways: increasing the cost to purchase and provide goods and services, driving up demand for services and forcing nonprofits to limit their services due to financial constraints. 

Increased costs for food items are putting pressure on budgets of direct service organizations that are stocking their shelves to meet the increasing dietary needs of poor and vulnerable families. Even if most food items are donated, organizations such as food pantries still need to purchase some items. The CEO of a Boynton Beach, Florida food pantry, Marlene Mejia, explained, “Last year we used to get three palettes, and now it’s reduced just down to one. We still are very fortunate to be able to receive it. But being the largest pantry in Palm Beach County, it puts a big dent in our finances.”

Organizations that provide people with homes are likely not shocked that shelter prices also are up,  5% nationally over the past year and much more in some regions. For organizations that provide rental assistance in suburban and rural areas, the influx of urban residents during the pandemic has unexpectedly skyrocketed home prices and rents. Remote work may keep those prices high for some time. A Boise, Idaho nonprofit that pays rent for people close to being evicted says demand for assistance increased as housing prices shot up 75% from 2015 to 2020. 

Organizations that build structures also face rising costs for building materials. Habitat for Humanity Philadelphia cited a 70% cost increase to replace a roof on a row house in a single year. In addition, any organization that ships or transports goods is struggling with four-decade-high gasoline prices.

While the unemployment rate has fallen, rapid rising inflation is countering an upswing in the labor market. Fewer unemployed workers should reduce demand for direct services, but because inflation erodes purchasing power, clients may still be unable to make ends meet. In fact, many direct service organizations are still experiencing sharp increases in demand for food and shelter. 

At the same time, the tight jobs market has pushed some nonprofit organizations to raise wages to attract and retain talent. But not every nonprofit organization can afford to pay its staff more, especially those whose budgets are dependent on government contracts. They have had to absorb the rising costs, which they cannot readily pass on to customers, or alter services and operations. 

This 40-year high in inflation is inescapable and unsustainable. Indeed, inflation is testing the financial stability of nonprofit organizations which managed to survive the pandemic. As Giving USA’s data demonstrate, charitable giving hit a record $471 billion in 2020 as Americans stepped up during the pandemic. 

The philanthropic community is stepping up again to help nonprofits meet increased demand or close unexpected budget shortfalls due to volatile price increases. However, one-time gifts, though critical, are temporary solutions. Until inflation begins to abate, American households and the charitable sector will struggle to make every dollar stretch further. There is no sign that inflation is slowing so pressure on organizations and services will continue for the foreseeable future. Sadly, the communities served by budget-crunched charities will suffer most when the aid they turn to is no longer there. 

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