Thoughts

August 21, 2026 | 12:59

U.S. Living Costs Still Concerning

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

With less than three months to go until the midterm elections, rising living costs look to remain a flashpoint for American voters. In particular, the higher cost of credit, fuel, and food are key pain points, especially for lower-income households.

As 30-year mortgage rates probe one-year highs of 6.7%, housing affordability remains strained, despite cooling home prices. The consequences were on full display this week, as pending home sales fell for a second straight month in July to near-record lows, housing starts reversed 12%, and completions sank to six-year lows.

Although food inflation has moderated, CPI grocery prices still rose 2.7% y/y in July, led by costlier beef, fish, vegetables, and fruit. Dining out bills have risen even faster, by 3.4%. The recent loosening of ground beef import restrictions will help.

But the higher cost of food pales against that of fuel. Regular retail gasoline prices surged 31% in the past year and are once again topping $4 a gallon. Though below May’s peak of nearly $4.60, gas is a buck dearer than before the Iran conflict. Diesel prices have jumped nearly 50% y/y, adding to the burden on truck drivers.

The 3.7% y/y increase in personal consumption prices to June raised the average household’s total expenditure by an estimated $5,760 in the past year. Costlier gasoline (27%) added $750, while pricier groceries (2.4%) tacked on $270. The two accounted for nearly one-fifth (18%) of the total increase in expenditures, a significant amount for items most people regularly need to purchase. Worth noting is that the rise in PCE grocery prices was tempered by substitution effects. But while switching from beef, whose price rose 12%, to chicken, whose price fell 2%, may help stretch the family budget, the loss of utility is an implied price paid by beef lovers.

To be sure, incomes have not stood still in the past year. Average household disposable income rose an estimated $7,150 in the year to June, more than enough to offset the higher living costs and still leave roughly $1,390 available for additional spending. However, the increase in spending power is less than 1%, and many families likely experienced an outright loss.

Higher living costs likely partly explain why credit card delinquency rates remain elevated, despite generally supportive economic conditions. New York Fed data show that the share of credit card balances at least 90 days delinquent rose to 12.9% in Q2 from less than 8% in 2022, close to the financial crisis peak of 13.7%. Some of the increase reflects an accounting change, as lenders are keeping defaulted balances on their books much longer than in the past. To account for this shift, the New York Fed estimates that the share of balances newly delinquent is much lower at 7.0%, or about 4 ppts below the financial crisis peak for this rate and little changed since 2024. But while credit card delinquency rates may have peaked, the current level is still about one percentage point above the long-run average.

The big picture is that, even as underlying inflation appears to be easing (see last week’s Focus Feature), many households are strained by elevated living costs—less than eleven weeks before the elections.