Five Economic Takeaways: Inflation, Spending, and Consumer Trends This Week
This week’s economic data delivered a mixed picture for American households, with inflation easing modestly while wage growth slowed and retail spending declined. From grocery prices to gas costs to the labor market, the latest government and industry reports reveal how the U.S. economy is navigating the ongoing war with Iran and its ripple effects on everyday finances.
Inflation Cools, But Remains Elevated
Consumer prices rose just 0.1% from June to July, according to new federal data, marking the second consecutive month of slowing annual inflation after a sharp jump in April and May sparked by the U.S. war in Iran. Annual inflation slowed to 3.4% from a year ago, down from 3.5% in June. Core inflation, which excludes volatile food and energy prices, was 2.5% for the 12 months ending in July, down from 2.6% in June.
The CPI had jumped to 4.2% in May as the conflict pushed crude oil prices higher. Market odds of a September Federal Reserve rate hike fell to about 40% after the cost-of-living report, although another inflation report is due before policymakers meet again.
Groceries: A Mixed Picture at the Supermarket
Grocery costs dipped slightly between June and July but remain up 2.7% compared to a year ago. Lettuce prices plunged more than 16% in July after an outbreak of cyclosporiasis prompted a recall of iceberg lettuce from Mexico, with retailers offering deep discounts on other lettuce varieties to woo anxious shoppers. Beef prices are still climbing, though chicken and eggs have become cheaper.
Gas Prices: Still Elevated Despite Monthly Decline
Gasoline prices fell 2.9% in July, but they remain nearly 25% higher than a year ago. The average price of regular gas is still more than a dollar a gallon higher than before the war with Iran snarled tanker traffic in the Strait of Hormuz, which ships roughly 20% of global oil supplies. Average fuel prices tracked by AAA have ticked up again in recent days given the lack of progress in getting oil tankers moving through the critical waterway. Brent crude oil hit $90 per barrel, while U.S. crude rose to almost $84 per barrel.
Wage Growth Slowing as Labor Market Softens
The job market is stuck in a rut, and employers aren’t having to pay as much to attract and keep workers. Average wages rose 3.2% in the past year, according to the Labor Department’s July report — slower than the growth reported for June and no longer keeping pace with inflation at 3.4%. Average hourly earnings slipped 0.2% from a year earlier.
This is a turnaround from mid-2023 to early 2026, when wages grew faster than prices and workers’ real buying power improved. Inflation has been wiping out wage gains for the past four months, noted Heather Long, chief economist at Navy Federal Credit Union. “For middle-income and lower-income Americans, this is the key issue,” Long said. “There will likely be some belt-tightening ahead.”
Employers cut 23,000 jobs in July, an unexpected loss, and job gains for May and June were revised sharply lower. The unemployment rate dipped to 4.1%, but only because more than 260,000 people dropped out of the workforce. Glassdoor’s worker confidence index slumped in July to a record low. “We are increasingly hearing from workers that they are anxious about their job security and they are frustrated by the fact that they are stuck in roles that are not necessarily good for them,” said Daniel Zhao, chief economist at Glassdoor.
Retail Spending Declines, But Lower-Income Families Spend More
Retail sales declined 0.6% from June, according to Friday’s report from the Commerce Department — the first decline in months. People spent less on electronics, autos and auto parts, and gasoline. A big factor was Amazon’s Prime Day being moved from July to June this year, contributing to online store spending dropping 2.2% from June to July.
Year-over-year, however, spending grew almost across the board: spending at restaurants and bars increased 5%, and gas station spending was up 16% from a year ago.
Interestingly, researchers at Bank of America reported that spending by lower-income shoppers actually increased in July, while spending by upper-income folks ticked down. That marks a slight reversal of the “K-shaped economy” trendline, with restaurant spending growing faster among lower-income families than higher-income households.
Household Debt and Federal Borrowing
Credit card balances grew approximately 4.5% year-over-year, while auto loan balances rose approximately 3.5%, according to this week’s report from the Federal Reserve Bank of New York. On a quarterly basis, credit card balances rose $21 billion to $1.26 trillion, and auto loans increased $28 billion to $1.71 trillion. Other major debt categories also expanded on an annual basis: mortgage balances grew $182 billion year-over-year to $13.1 trillion, and student loan balances rose $13 billion to $1.65 trillion, even though both declined modestly in the second quarter alone. Federal researchers say delinquency rates are “fairly stable,” though new delinquencies for auto loans and credit cards remain at elevated levels.
Meanwhile, congressional forecasters expect the federal deficit to top $2 trillion this year — about $200 billion more than projected six months ago. The government’s cumulative debt is approaching $40 trillion, and just paying interest on that costs more than a trillion dollars a year, eclipsing every other federal program besides Social Security.
What’s Next
Next week will bring an even more detailed look at consumer spending, with earnings reports from bellwether retailers including Walmart, Target, Home Depot and Lowe’s. So far, consumer giants such as Amazon and McDonald’s have described shoppers as careful but resilient. The next update on the cost of living from the Bureau of Labor Statistics is due Sept. 11, ahead of the Federal Reserve’s next rate decision in mid-September.