New analysis of official inflation figures paints a stark picture for consumers, with the cost of everyday goods and services now standing at a staggering 25.1 percent higher than just five years ago. This sharp increase, measured across grocery carts, clothing racks, and car lots, continues to squeeze household budgets on both sides of the Atlantic.
The Inflation Snapshot: A Basket of Goods Under Pressure
Each month, the US Bureau of Labor Statistics compiles the Consumer Price Index (CPI), a crucial measure of inflation. Researchers track the real-world prices of a basket containing approximately 80,000 items, from eggs and rent to petrol and coffee. The latest data shows that in November, this basket was 2.7 percent more expensive than in the same month the previous year.
While this was slightly lower than the 3.1 percent economists had forecast, it means items costing $100 a year ago now demand $102.70. This follows a particularly brutal two-year period where price rises exceeded 5 percent, peaking at a four-decade high of 9.1 percent. Scott Anderson, chief economist at BMO Bank, captured the public mood, telling CNBC: "We're all comparing our grocery bills to what our money could buy in 2019 and not walking away with a warm and fuzzy feeling."
A Deepening Economic Divide
The five-year price jump of 25.1 percent is dramatically higher than previous periods; between 2015 and 2020, for instance, prices rose by just 10 percent. Crucially, this inflationary wave has not impacted all Americans equally, a dynamic mirrored in the UK's own cost-of-living crisis.
Wage gains for middle- and high-income earners have largely kept pace with inflation, allowing six-figure households to absorb higher costs without drastic cutbacks. This spending has helped sustain robust economic growth, with Gross Domestic Product (GDP) jumping 4.3 percent from July through September.
However, for lower-income Americans and hourly workers, the reality is far harsher. Anderson notes that "wage gains tend to be higher for higher-skilled workers," particularly in sectors like finance and technology. The result is an economy increasingly split in two: one where rising prices are an inconvenience, and another where they are genuinely destabilising for those already scraping by.
Consumer Confidence and a Shifting Inflation Target
This growing divide is now evident in key economic indicators. In December, the Consumer Confidence Index fell for the fifth consecutive month, dropping to 89.1—its second-lowest reading of the year. Dana Peterson, chief economist at The Conference Board, confirmed the trend, stating confidence "remained well below this year's January peak."
Amid this pressure, some market analysts believe the goalposts for controlling inflation have subtly moved. While the Federal Reserve, chaired by Jerome Powell, publicly maintains a 2 percent inflation target, observers like Tom Hulick, CEO of Strategy Asset Managers, suggest the effective target is now closer to 3 percent. "This will never be formalised or admitted publicly," Hulick said, implying a permanent shift in expectations.
For shoppers whose budgets are already stretched thin, this potential shift carries a clear and sobering implication: even if the rate of price increases cools, the historically high costs are unlikely to retreat. The 25.1 percent increase over five years appears to be the new, painful baseline for the cost of living.
