The inflation rate in the United States was 3.4 percent over the twelve months ending in August 2026, according to the Bureau of Labor Statistics. However, most households do not believe this number accurately reflects their experiences with price increases.
The disconnect between the reported inflation rate and household perceptions can be attributed to the fact that the government measures the rate of change in prices, while households experience the actual price level. Since January 2020, prices have risen by approximately 30 percent, and this cumulative increase is what households are comparing to when they assess their current financial situation.
Inflation Measurements
The Consumer Price Index (CPI) for All Urban Consumers, which is used to calculate the inflation rate, only reflects the change in prices over the past twelve months. In contrast, the Bureau of Labor Statistics’ inflation calculator shows that $100 in January 2020 would be equivalent to $129.85 in August 2026, illustrating the significant cumulative price increase over the past six and a half years.
This distinction is important because it explains why many people feel that the reported inflation rate does not accurately reflect their experiences. When households compare current prices to those in the past, they are not just looking at the change over the past year, but rather the total increase in prices since a particular point in time.
For example, car insurance premiums may have decreased by 5.1 percent over the past twelve months, but since January 2020, they have actually increased by approximately 48 percent. This means that a driver who renewed their insurance policy last month may have paid less than they did last year, but they are still paying roughly half again what they paid in 2020.
The weights used in the CPI index also play a significant role in the reported inflation rate. Shelter, which includes housing costs, accounts for approximately 35 percent of the index, while food and other essential expenses have relatively smaller weights. As a result, increases in these categories may not be fully reflected in the overall inflation rate.
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Comparing the published index levels between January 2020 and August 2026 reveals significant increases in essential expenses such as electricity, utility gas, and food. These categories have risen by approximately 46 percent, 53 percent, and 32 percent, respectively, over the past six and a half years. However, because they have relatively small weights in the CPI index, these increases do not fully account for the reported inflation rate.
Household Finances
According to the Bureau of Labor Statistics, real average hourly earnings for private nonfarm employees actually decreased by 0.3 percent over the past twelve months, despite a nominal pay increase of 3.1 percent. This means that the purchasing power of workers has decreased, as prices have risen faster than wages.
Over the longer term, the situation is even more pronounced. Since January 2020, real average hourly earnings have only increased by approximately 3 percent, while prices have risen by about 30 percent. This significant disparity between wage growth and price increases has resulted in a decline in the standard of living for many households.
A survey conducted by the Federal Reserve in 2025 found that 73 percent of adults reported being financially okay or living comfortably, which is roughly the same as in 2019. However, when asked about the national economy, only 26 percent of adults rated it as good or excellent, compared to 50 percent in 2019.
The same survey revealed that 58 percent of adults reported being worse off due to price changes over the past year, and about nine in ten considered price increases to be a minor or major concern. Among lower-income households, the concern was even more pronounced, with 66 percent of adults earning under $50,000 reporting that price increases were a major concern.
In response to rising prices, many households have had to make adjustments to their spending habits. According to the survey, 62 percent of households switched to cheaper products, 60 percent reduced their consumption of certain goods or services, and 46 percent delayed major purchases. A total of 77 percent of households reported taking at least one of these actions to cope with rising prices.
