American consumers are growing markedly less confident that their paychecks will keep up with rising prices. Only 8% of US consumers now expect their income to grow faster than inflation over the next year, the lowest share recorded in at least two years, according to survey data highlighted by The Kobeissi Letter. That figure has fallen 10 percentage points since November 2024.
The pessimism is showing up alongside rising inflation expectations rather than easing ones. According to the University of Michigan's Surveys of Consumers, year-ahead inflation expectations climbed to 4.3% in August from 4.2% in July, surpassing the 3.4% reading recorded in February — just before the Iran conflict erupted — and coming in above every reading recorded in 2024 as well. Consumers’ longer-run, five-to-ten-year inflation outlook has stayed anchored at 3.3% for a third straight month, suggesting the near-term pessimism hasn’t yet spread into expectations about the more distant future.
Some Groups Are Feeling It More Than Others
The survey found particularly large declines in confidence among older consumers, lower-income households, and those without a college degree — groups researchers describe as more exposed to any erosion in real purchasing power, since they typically have less flexibility to absorb higher costs through savings or investment income. At the same time, roughly 20% of respondents reported concern about their financial stability more broadly, underscoring that the income-inflation gap is being felt unevenly across the population rather than uniformly — a pattern that echoes separate survey data showing Gen X and Boomer confidence sinking to multi-year lows this year.
A Split Between Consumers and Markets
The souring consumer mood is notable set against the backdrop of a stock market that has been on a lengthy weekly inflow streak and long-term bond yields that have climbed to their highest level since 2008 — a combination that reflects investors positioning around growth and rate expectations even as ordinary households report growing anxiety about whether their own earnings can keep pace with the cost of living.
Related: US Savings Rate Falls to 2.7% in June, Near Historic Lows
Why the Fed Will Be Watching This Closely
Consumer inflation expectations feed directly into the kind of behavior the Federal Reserve tries to anticipate: if households expect prices to keep outrunning their income, they can adjust spending and wage demands in ways that make inflation more persistent. With the Fed's meeting minutes due out this week, a reading this weak on income-versus-inflation confidence adds another data point policymakers will need to weigh against the labor market and pricing data arriving over the same stretch.
