Personal inflation rates: How one inflation rate may translate to 340 million different experiences

Feeling like financial media headlines just don’t match the reality you’re living in? You're not alone. The “split-screen economy” is an idea we’ve been covering since late 2025. The crux of it? Financial indicators can look OK to great, but a lot of households feel increasingly squeezed.

Inflation is one example. While it’s come down considerably from the peak reached a few years ago, inflation rose again for much of the first half of 2026. It fell a bit earlier this summer, but at the moment, progress seems to have stalled at an uncomfortable 3%+.

And there’s still a lot of uncertainty about where inflation goes next; higher energy costs, trade disruptions and tariffs all have the potential to put upward pressure on prices.

The variance between headlines and real life is one aspect of today’s economy, but there’s another: totally differing experiences that depend on who you are.

Inflation doesn’t affect everyone the same way. In fact, your personal inflation rate may look very different from the one reported in the news and those of the people you know.

One headline inflation rate = multitudes of personal inflation rates

One reason inflation feels so different from person to person is that prices don’t rise uniformly.

Over the past several years, some of the fastest-rising categories have been necessities such as housing, food and energy. Meanwhile, some discretionary goods have experienced much smaller increases or have even become less expensive over time.

Necessities, of course, are much harder to avoid. A family can postpone buying a new television. It can’t easily postpone paying rent, filling a gas tank or purchasing groceries.

Essential purchases that have seen cost spikes also make up more of the budgets of those in younger generations and on fixed incomes

Overall proportion of total spending for each age group directed to the noted categories, on average. Inflation rates by category are based on the CPI-U from Sept. 2021 through Aug. 2026, when the overall inflation rate was 22%. Spending data is from the 2024 Consumer Expenditure Surveys. Source: Bureau of Labor Statistics

Very few of us lead an “average” life

Economists measure inflation by tracking the price changes of a “shopping cart” of goods and services intended to represent the spending of the average consumer.

But assuming you’ve been to a grocery store, you’ve surely seen that no two carts are filled with the same exact combination of things. The truth is that people don’t experience averages. They experience the prices of the goods and services they actually buy.

A retired couple may spend a significant portion of their income on housing and healthcare. A working family may devote a larger share of their budget to childcare, groceries and gasoline. A higher-income household may spend more on travel, entertainment and other discretionary purchases.

Imagine two households. One spends 45% of its budget on housing, food and utilities. The other spends a larger share on discretionary purchases like electronics, travel and recreation. If essential expenses rise significantly while discretionary goods remain stable or even decline in price, the first household will feel far more inflation pressure even though both are living under the same headline inflation rate.

Who’s feeling inflation today?

Inflation has been hitting lower- and middle-income households hardest because necessities consume a larger share of their budgets.

When food prices increase, households with substantial discretionary income often have more flexibility to absorb those costs. Households already allocating most of their income toward necessities may have little room to adjust.

Retirees can face a different challenge. Many rely on fixed income sources that don’t immediately adjust with prices. Even when annual cost-of-living adjustments occur, they may not perfectly match the specific inflation pressures retirees face, particularly in healthcare-related spending.

Higher-income households may still notice inflation (and no one really likes it), but they often have greater flexibility in both spending and savings decisions.

The wage picture is more complicated than it looks

Wages are an important part of the inflation story, but here again, averages can be misleading. Wage growth isn’t occurring evenly across industries, locations or age groups. And for most people, the key question isn’t whether wages are rising but whether they’re rising enough to cover increases in housing, food, transportation and other essential expenses. Earlier in 2026, for the first time in years, that wasn’t the case overall.

Wage growth is no longer keeping up with inflation

Inflation is the CPI year-over-year change. Wage change is average hourly earnings. There was no CPI figure release for Oct. 2025 due to the U.S. government shutdown. Source: Bloomberg, Bureau of Labor Statistics (BLS); as of August 31, 2026

Broad, accelerating wage growth, while it sounds great, has historically contributed to wage-price spirals, where wages and prices continually push each other higher. The silver lining is that’s one reason economists generally believe we don’t need to worry about runaway inflation at the moment.

Forecasts for 5-years-out inflation rates have settled around 2.5%

Market-based expectations derived from 5y U.S. Treasury breakeven yields; economist forecasts from third quarter 2026 Survey of Professional Forecasters. Source: Bloomberg, Federal Reserve Bank of Philadelphia

Feeding the K-shaped economy

All this adds up to what many people call a K-shaped economy (a term first coined during the COVID-19 pandemic) – some households thrive (the upper arm of the “K”) while others struggle (the lower arm of the “K”), with the gap continuing to widen over time. Inflation isn’t the only reason for this divide, but it has become one of the most visible.

Recent tariff developments offer a related illustration. Over the past couple years, many businesses facing higher import costs passed those costs on to consumers through higher prices. When the tariffs were ruled unconstitutional in April 2026, the federal government began reimbursing tariff revenue to the companies who ostensibly paid it. As of August 2026, ~$107 billion of the collected $166 billion had been reimbursed to some of the largest U.S. importers: Walmart ($2.9 billion), Apple ($2.2 billion), Ford ($1.3 billion), Target ($994 million) and Nike ($986 million).

Companies that received payments during the second quarter of 2026 were rewarded with a boost to their quarterly results, positive earnings surprises and increased stock prices. As the individual stock prices of these large- and mega-cap companies increased, so did the S&P 500 and other broad market indexes. Consumers were generally left with less money in their pockets, but those who invest in stocks reaped investment rewards. That’s the nature of a K-shaped economy.

And most companies haven’t dropped prices since receiving government refunds. Instead of lowering consumer costs, businesses are redirecting the refunded money to offset other rising operational expenses. So, consumers are still bearing the brunt of price increases.

What should investors do?

The temptation during periods of inflation is to look for a single investment that will protect against rising prices. History suggests the answer isn’t that simple.

Different inflation environments benefit different asset classes. Energy-driven inflation may produce very different market outcomes than demand-driven inflation or tariff-related inflation. The challenge is that no one can reliably predict which type of inflation shock will occur next or how long it will last. (Although, as we recently pointed out, while there are no guarantees, stocks and bonds have historically tended to perform well during the comedown from high inflation.)

You can’t control energy prices, trade policy or future inflation reports.

You can control your savings behavior, spending decisions, financial plan and investment strategy.

And in our view, that’s the best response: not chasing a shiny inflation hedge but rather maintaining a long-term plan that’s aligned with your goals, diversified across potential outcomes and flexible enough to adapt as economic conditions change. Need help navigating it all? That’s what we’re here for.