U.S. consumer sentiment remains under pressure as Americans continue to grapple with the lingering effects of higher prices and weaker purchasing power.

The University of Michigan’s consumer sentiment measure remained below pandemic-era levels in August, while inflation exceeded wage growth for the fourth consecutive month, Business Insider reported Thursday. Nearly three-quarters of consumers expected prices to rise faster than their incomes over the next year.

Wage Growth Fails to Keep Pace With Inflation

A new working paper from researchers at the University of Chicago Booth School of Business and ADP Research used ADP payroll data through 2025 to examine how the post-pandemic inflation shock affected workers’ purchasing power, according to the report. The researchers found that real wages fell between December 2020 and 2024 for nearly 40% of workers, compared with roughly 24% before the pandemic.

The researchers said the temporary inflation shock that followed the pandemic produced a "persistent downward shift in real wages," helping explain why dissatisfaction with the economy has lasted beyond the period of elevated inflation.

Nela Richardson, one of the researchers and chief economist at ADP, told Business Insider that "Inflation has slowed, but many people never fully recovered the purchasing power they lost when prices surged."

Richardson also said a 3% raise was generally enough to produce a modest real-income gain before the pandemic, but raises during the 2022 inflation surge often failed to keep pace with price increases. The researchers found that bonuses did little to offset the real-wage losses, while off-cycle raises provided some relief for workers who stayed in their jobs

Higher Prices Keep Weighing on Households

Mark Hamrick, chief economic analyst at The Hamrick Brief, told Business Insider that persistently high inflation above the Federal Reserve’s 2% target is contributing to Americans’ pessimistic views of the economy.

"Americans are literally paying the price for high inflation through elevated price levels," Hamrick said.

Nicole Bachaud, an economist at ZipRecruiter, told Business Insider that higher prices can leave consumers with less money available at the end of the month even when their nominal incomes increase.

"Even if you’re making more money numbers-wise, with the way prices are rising, you have less money left over at the end of the month," Bachaud said.

Bachaud said the pressure is particularly significant for middle- and lower-income households that depend on wage growth to remain financially stable.

Grocery Costs Add to Household Strain

Household financial pressure is also showing up in grocery spending. More than one-quarter of working-age adults who used credit cards to purchase groceries either could not pay their balance in full or missed a minimum payment.

About one in 10 working-age adults used buy now, pay later loans to cover grocery purchases, while roughly 20% said they had dipped into long-term savings, including emergency funds, to pay for groceries.

Grocery prices have risen 32% over the past five years, adding to the financial pressure facing households.

Energy Costs Add to Household Pressure

Higher energy costs are adding to the affordability squeeze, particularly for lower- and middle-income households. Boston Fed President Susan Collins said she was increasingly hearing from households struggling to make ends meet and described inflation as a continuing concern.

Collins also said she could support a September rate hike if economic conditions warranted tighter policy, while cautioning that inflation remained too high.

Credit Card Debt Adds to Financial Stress

U.S. credit card balances climbed to $1.26 trillion in the second quarter, while about 60% of cardholders carry revolving debt. New York Fed researchers said the figures reflect a "K-shaped economy," with many households living paycheck to paycheck.

Matt Schulz, chief credit analyst at LendingTree, said rising consumer debt shows households are stretching their budgets amid stubborn inflation.

Inflation Is Cooling, But Prices Remain Elevated

Recent inflation data show that the pace of price increases has moderated, but price pressures remain.

The Producer Price Index was unchanged in July, while annual producer inflation eased to 4.7% from 5.5%. Core producer inflation rose 0.2% during the month, with the annual core rate easing to 4.2%.

Energy provided some relief, with gasoline prices falling 5.7% in July. But slower inflation does not reverse the higher price levels households have already absorbed.

The continued gap between income growth and living costs could therefore remain a headwind for consumer confidence, particularly for households with limited savings and less exposure to rising financial-asset values.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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