Consumer Confidence Sinks as 3.7% Inflation Squeezes US Shoppers

The squeeze, in numbers

American households are being hit by higher prices and higher borrowing costs together, and the data released through mid-October shows the pressure building rather than easing. The Bureau of Labor Statistics reported that consumer prices rose 0.6% in September and 3.7% from a year earlier, up from 3.4% in August.41 Gasoline was the biggest single driver. It rose 9.1% in the month and accounted for about half of the overall increase.41 Core inflation, which excludes food and energy, also beat forecasts. It came in at 2.6% for the year against an expected 2.5%.42 That suggests the problem is spreading beyond the gas pump.

Wage figures make the price data harder to absorb. Average hourly earnings rose 3% over the year, well short of inflation. Pay has trailed prices since spring.42 Navy Federal Credit Union economist Heather Long summed up the problem simply: 3.7% inflation against 3% typical pay raises leaves a large gap, and many families cover it by switching to store brands and buying less meat.50

In the coverage, people describe the strain as built up over years more than caused by one shock. One analyst told ABC News that many Americans have already cut whatever spending they can and now feel they "can't catch a break."14 The same reporting traces the recent surge to the Iran war, which pushed up costs for gasoline, groceries and other goods across the country.12 Meanwhile, a key long-term Treasury rate reached its highest level in nearly two decades, which pushed up credit card and mortgage rates.12

Consumer confidence is near historic lows

The major sentiment surveys all point down. The University of Michigan's preliminary October index fell to 46.3 from 48.1 in September, 13.6% below a year earlier.7 Its measure of current conditions dropped further, from 50.9 to 44.7, a monthly fall of about 12%.3 Survey director Joanne Hsu said frustration with the cost of living keeps growing among consumers of every political leaning.7 Respondents also expect more inflation ahead: their one-year forecast rose to 4.7% and their long-run forecast to 3.5%. Both are the highest readings since May.3

The LSEG/Ipsos index paints an even worse picture. Its October reading of 45.2 was the lowest since October 2011. The 5.3-point monthly drop was the second-largest on record, behind only April 2020, and the index now sits below its May 2020 pandemic low.5 The Conference Board's index fell 6.7 points to 81.9 in September, and its expectations measure declined for the third month in a row.7 Pessimism has also reached executives. The share of CEOs expecting conditions to worsen over the next six months more than doubled to 41%.8

The surveys differ in tone, not direction. The Michigan expectations index actually ticked up to 47.3, with slightly better views of personal finances and business conditions over the coming year.4 That is a small gain, though, and it still leaves expectations 6% below October 2025.3 More important is who is losing confidence fastest. Michigan found the steepest drops among lower-income households and people with smaller stock holdings, the groups least able to absorb rising prices.4

Grocery prices: the official data and shoppers' experience don't match

The coverage diverges most on groceries, and how to read that gap matters. The official September numbers look calm. The BLS food-at-home index fell 0.1% for the month and was up only 1.8% from a year earlier. Restaurant prices rose 3.5% over the same period.44 NBC News reported that groceries were one of only three major categories where prices fell.45 Egg prices are down more than 20% from a year ago.44

Shoppers are not imagining the pain, though. What they react to is the price level, not the monthly change. Grocery prices in September were about 22% higher than five years earlier.27 Beef has been especially stubborn: the USDA expects beef and veal prices to rise 9.4% in 2026, even as the broader grocery category stays moderate.29 The people ABC spoke with described exactly that. A New York law student said he has switched to fattier beef or to chicken because they cost less.15 A semi-retired Tennessee man said he and his wife moved to cheaper stores, and even those prices have crept up.19

The bigger risk is what's coming. Wholesale food prices rose 1.2% from August to September, the largest monthly gain since February. The overall producer price index was up 6.3% from a year earlier, the steepest rise in nearly four years.30 Diesel averaged $6.32 a gallon, compared with $3.66 a year earlier, which raises the cost of trucking food and running farm equipment.30 Cornell economist Chris Barrett said he was surprised grocery prices haven't climbed faster. He thinks retailers are absorbing some costs to avoid driving away customers who are already fed up.27 The USDA has raised its 2026 forecast for grocery inflation from 1.7% to 2.4%.27 Our reading is that the soft monthly grocery figure is more likely a pause than a turning point. Retailers can absorb wholesale cost increases for only so long.

The pattern isn't limited to the US. In Britain, grocery inflation rose to 2.5% in the four weeks to October 4, and spending on promotions was more than £250 million higher than a year earlier.21 UK grocery sales grew only 1.0%, which suggests shoppers bought less in volume once higher prices are taken into account.23

Subscriptions keep getting more expensive

For a tech audience, streaming may be the clearest case of prices rising whatever the economy is doing. Disney raised the ad-free Disney+ and Hulu plans by $2.50, or 13%, to $21.49 a month each. It is the two services' fourth price increase in four years.34 The Hollywood Reporter noted that streaming prices have risen roughly three times faster than overall inflation since 2022.34 Disney is far from alone. Netflix raised every tier in March, and its Premium plan is now $26.99. YouTube Premium went up $2 in April, Peacock raised all tiers in August, and Apple TV went to $14.99.32

The pricing is not just about passing on costs. It is designed to push customers toward particular plans. A Disney+/Hulu bundle now costs almost half as much as subscribing to both separately, and bundled customers are less likely to cancel.34 Ad-free plans are getting the biggest increases, while ad-supported tiers rise more slowly.31 CNET's survey puts the average American who pays for subscriptions at $111 a month in 2026.37 Each increase is small, but they add up while wages are already falling behind. Monthly recurring charges are also the easiest costs to forget about, and the easiest to cancel once households start looking for savings.

Retail sales: Americans are spending, but not happily

The obvious question is whether gloomy surveys mean consumers will stop spending. So far, mostly not. Retail sales rose 0.8% in September, more than economists expected.30 That figure needs a caveat. Spending at gas stations rose 6.4%, and sales excluding gas rose only 0.2%, much of which also reflects higher prices.30 One economist described consumers as unhappy but still spending.30

Analysts largely agree that steady jobs are holding things up. The Los Angeles Times attributed continued spending to unusually strong job security, despite scattered layoffs.30 New York Fed data shows worries about losing a job have eased, which points to prices, not unemployment, as the main source of anxiety.3 Hiring is weak, though: employers added only 29,000 jobs in September.10

Under the totals, the split between richer and poorer households is widening. Spending growth is being driven mainly by higher-income households.6 Circana's holiday survey shows the average shopper plans to spend $779, down from $796 last year, and 74% plan to economize.3 Taken together, the evidence suggests a gradual squeeze on spending by lower- and middle-income households, more than a sudden collapse.

The Fed adds more pressure

Interest rates make all of this harder. The Federal Reserve raised its benchmark rate in September for the first time in more than three years, to a range of 3.75% to 4%.41 After the September CPI report, futures traders put the odds of another increase at the October 27-28 meeting at about 54%, and the odds of a hike by year's end above 96%.41 Cleveland Fed President Beth Hammack said she expects more increases in December and early 2027.43 Any further hike would raise rates on credit cards, personal loans and auto loans for households that are already stretched.45

Moody's Analytics economist Mark Zandi estimates the war has cost the average household nearly $2,000. That includes $1,100 in higher energy costs and $540 in higher interest costs, and the energy share is growing by about $50 a week.27 With the midterms approaching and inflation ranking as a top concern for voters in both parties,45 the next few months will show whether Americans can keep spending through higher prices or whether the gap between pay and prices finally cuts into spending. Our view is that the gap matters more than any single month's number. Until wage growth catches up with inflation, consumer gloom is a reasonable reaction to how household finances have actually changed.