At a Glance
- Grocery, electricity and natural gas prices kept climbing in December while headline inflation stayed flat
- Lower-income households felt the squeeze as essentials outpaced wage gains
- Top 5% of earners drove most spending growth on travel and dining, Bank of America data show
- Why it matters: The uneven pain threatens consumer sentiment and shapes 2025 election-year policy
Household basics kept getting pricier in December even as overall inflation stayed level, widening the gap between Americans who can still spend freely and those struggling to cover everyday bills.
Core Gains Mask Essentials Pain
Wall Street applauded the Labor Department’s Tuesday report showing so-called core inflation-stripping out food and energy-stabilizing. Yet the items left in that category are the ones families buy most often.
Grocery aisles posted broad increases last month:
- Five major food groups rose simultaneously
- Restaurant tabs increased again
- Utility bills added pressure, with electricity up nearly 7% for the year and natural gas posting double-digit gains
Health-care costs, quiet for years, are re-accelerating, the Bureau of Labor Statistics figures show.
Some prices did retreat. Gasoline fell, alongside used cars, communication services and household services. Still, the relief was narrow.
“Tuesday’s report reinforces [that] price pressure is edging higher across key consumer product categories that matter most to consumers,” wrote Rob Holston, EY Global’s consumer-products lead.
K-Shaped Split Hardens
Persistent inflation in necessities is deepening what analysts call a K-shaped economy. Higher-income households, cushioned by rising home values and stocks, keep spending. Lower-income families, facing stalled wages, pull back.
Bank of America spending data through late 2025 illustrate the divide:
| Income Group | Spending Trend |
|---|---|
| Top 5% | Drove bulk of overall gains, especially on travel, dining, online retail |
| Lower 60% | Cut non-essentials: airline tickets, vacation rentals, hotels, furniture, entertainment |
“The ‘K’ is here to stay,” the bank’s economists told clients Monday.
When growth relies on a narrow slice of big spenders, risks mount. Hiring has softened and wage gains slowed, limiting mobility up the income ladder.
Voices From the Middle
“These families are frustrated at their ability to get ahead because of the rise in the cost of living, the lag in wage growth, their inability to save and the increase in their credit card balances,” said Glenn Williams, CEO of financial-services firm Primerica.
White House alarms are ringing. Consumer sentiment sits well below year-ago levels, and New York Fed surveys show people expect job-finding to get tougher while prices keep rising.
President Donald Trump, speaking Tuesday at the Detroit Economic Club, put affordability at the center of his pitch: “One of our top priorities of this mission is promoting greater affordability. Now that’s a word used by the Democrats. They’re the ones that caused the problem.”
Policy Levers in Play
In recent days Trump has floated quick-hit ideas:
- Urge oil firms to tap Venezuelan crude to trim gas prices
- Order $200 billion in mortgage-bond purchases to lower home-loan costs
- Ask credit-card issuers to cap rates at 10% for one year
Lower interest rates remain the loudest plank of his economic message, but most analysts expect the Federal Reserve to stand pat at its meeting this month. Cutting too fast could reignite inflation, economists warn.
Key Takeaways
- December data show inflation’s last mile is bumpy: staples up, headline flat
- Lower earners feel the squeeze, higher earners keep splurging
- The split shapes both consumer mood and 2025 campaign promises
- Rate-cut relief may arrive later than the White House wants
