U.S. Economic Indicators Are Clear, But Consumer Sentiment Is Gloomy: An In-Depth Analysis of the Real Cost-of-Living Crisis

From a macro perspective, the U.S. economy is seen as looking very healthy, with a booming stock market, strong consumer spending, solid corporate investment, and low layoff rates. This raises expectations that the economy is in an accelerating phase and that markets could climb sharply.

But the reality, critics point out, feels very different. Consumers face successive high inflation readings, leaving them with little to spare, and prices have emerged as their biggest worry. Inflation remains stubbornly above the level the Federal Reserve wants.

Compared with before the pandemic, grocery prices have risen more than 30%, and rents have risen by more than a third. Auto insurance premiums have nearly jumped 50%, and energy price increases stand out even more than other items.

Such price surges have created a grim outlook for people who cannot find jobs or hope to buy a home, and have made 'affordable costs' the top priority for voters. Both parties are leaning on economic populism, and 'affordable living costs' has become the central issue of this election season.

To understand today's inflation, one must go back a few years to when supply chains were thrown into chaos during the pandemic. When the economy reopened, a huge wave of consumer demand pushed prices up. In addition, the Russia-Ukraine war drove up fertilizer prices, and reciprocal tariffs raised prices on certain goods.

More recently, energy prices have spiked as the war with Iran has broken out. Because of this series of economic headwinds and price shocks, prices have not come down, which is a key reason consumers feel no sense of relief.

Looking at the Consumer Price Index (CPI), the government's inflation gauge published by the Bureau of Labor Statistics, prices rose during the COVID-19 period, peaked in 2022, and then the pace of increase slowed.

However, by 2026, even though the inflation rate had been 2.4%, the prolonged war between the U.S., Israel, and Iran, now more than six months old, reignited inflation. As a result, it hit 3.7% in September, turning upward again.

Diesel is so central to logistics that people say the economy runs on it. Amazon deliveries and grocery deliveries alike are handled by trucks, so rising diesel prices inevitably hit consumers directly. According to Pastor Paul Ringgold, who is also a private truck driver, he used to spend about $800 to $1,200 a week on fuel before the war with Iran, but now it has climbed to around $1,700 a week, and he feels the pain every time he goes to the gas station.

Because of such rising fuel costs, drivers across the country are not getting any relief. When shipping rates rise, the prices of goods sold in stores eventually go up as well. This squeezes people who are both business owners and consumers.

Consumer sentiment in the U.S. is currently poor, lower than during the 2008 financial crisis and the pandemic. The biggest problem is that Americans are not keeping up with inflation.

As pandemic restrictions eased, companies raised wages to meet demand, but as inflation surged, those wage gains were eroded. As inflation cooled, Americans seemed to be regaining their footing, but over the past few months real wages have begun to fall again, and the feeling that people were barely hanging on or getting a bit better is now fading.

Caught in the tug-of-war between wages and inflation, consumers are taking side jobs or seeking stock market returns to close the gap. They are also using 'buy now, pay later' services and other compromises, making every effort to keep spending and maintain their lifestyles.

Fortunately, the unemployment rate is currently very low, and in normal times anyone seeking a job would appear able to find one. But for young workers, the unemployed, and new college graduates, finding work has become much harder, and Americans who are dissatisfied with their current jobs feel unable to leave them because of limited opportunities. In addition, the period of unemployment after being laid off has stretched to around six months. This is rarely seen during economic growth and has historically coincided with recessions.

The divide between those who have and those who do not is extending into the housing market. Anyone who bought a home when interest rates were low in 2020 is likely satisfied, but for those without a home who want to buy one, the situation is very difficult. The median U.S. home price has risen about 50%, and mortgage rates have soared from below 4% to above 7%.

As a result, compared with the typical monthly mortgage payment in 2019, today's payment is roughly double. The residential construction market is in poor shape, and some economists now describe it as effectively in recession.

Investment in AI infrastructure is driving job growth in some sectors, such as nonresidential construction, and contributing to economic growth. According to Bloomberg Economics' analysis of government data, AI-related investment contributed about 1 percentage point to GDP growth in 2025, roughly half of overall economic growth.

But this AI boom comes with a price. The demand for tens of billions of dollars in AI investment is pushing up costs across the board, from software to computers, affecting not only those sectors but overall price increases as well. This creates resource shortages that drive prices higher, and it is also raising social concerns such as residents opposing data center construction and worries that workers will be replaced by automation.

Politics is also part of the current picture. Unusually large tax refunds under legislation passed last year acted as a buffer against rising gasoline and energy prices and helped support consumers this year. But that party is said to be nearly over. Stopgap measures, such as Trump's efforts to secure diesel supplies and initiatives to lower prescription drug prices, appear unlikely to change the situation much.

With prices this high, the Federal Reserve inevitably comes into play. For more than five years, inflation has run above the Fed's target, and the Fed has signaled a gradual approach. When factors such as AI and energy prices are beyond the reach of interest rates, reining in prices requires restraining other parts of the economy. That means raising interest rates to cut consumer spending and dampen business investment, slowing the economy, which could translate into real pain for people across the country.