Rising Food and Shelter Costs Test Household Budgets

Inflation accelerated in May, and while energy prices continue to grab headlines, shelter, food and services, categories that account for a large share of recurring household expenses, continued to climb.

The Consumer Price Index (CPI) data released Wednesday (June 10) by the Bureau of Labor Statistics raise fresh questions about how long consumers can absorb higher monthly costs even as PYMNTS Intelligence data finds some segmentation in the ways in which households satisfy those obligations.

Annual consumer prices rose 4.2% in May, while prices have increased 2% since March, the fastest three-month stretch since mid-2022.

Food remained more expensive than a year ago and restaurant meals grew costlier, leaving households to absorb higher expenses across categories that cannot easily be postponed.

Those recurring obligations are reshaping monthly budgets in ways that headline inflation figures cannot fully capture.

Shelter prices rose 3.4% over the past year. Food consumed at home increased 2.7%, while food away from home climbed 3.5%. Medical services advanced 3.6%. Even consumers who cut discretionary purchases still confront these bills with predictable regularity.

The result is a budgeting exercise that repeats itself every month. Rent competes with groceries. Groceries compete with utilities. Dining out competes with savings.

That dynamic appears in the latest PYMNTS Consumer Expectations Index. While measures of confidence tied to the national economy have weakened, assessments of personal job security remain comparatively firm. Consumers may express concern about the broader outlook while continuing to make purchases because they still believe their own paychecks will arrive.
The distinction helps explain one of the more persistent puzzles in the economy. Spending has not fallen in lockstep with confidence because many households are adapting rather than retreating.

The latest government data indicate that furniture and some retail goods have become cheaper. Those declines may improve inflation statistics, but they do little for families whose largest expenses are tied to recurring necessities.

In comments provided to PYMNTS on Wednesday, EY-Parthenon Chief Economist Gregory Daco said, “The longer the Middle East conflict persists, the broader and more persistent inflationary pressures are likely to become. For now, there appears to be little passthrough of higher energy cost onto core inflation, outside of airfare. Still, we anticipate higher fertilizer prices will place upward pressure on food inflation, while rising transportation and production costs gradually pass through to a wider range of goods and services.”

Payments Become Part of Budget Management

Installment products, credit cards and other payment tools become mechanisms for managing liquidity as much as financing purchases.

The PYMNTS research suggests that financial conditions vary sharply across households. Consumers who are financially secure continue spending with relatively little disruption. Those living paycheck to paycheck without struggling remain active but value conscious. Those already struggling have seen their financial resilience deteriorate, leaving little room for unexpected costs.

That divergence means a retailer may encounter healthy sales in one neighborhood and softness in another despite identical inflation data. It also means payment products that reduce uncertainty can influence purchasing decisions as much as promotions or discounts.

Perspective From History

The current inflation rate remains well below the largest spikes in modern American history.

Consumer prices rose nearly 24% following World War I, exceeded 20% after World War II and approached 15% during the inflation crisis of 1980. Those episodes were driven by wars, supply disruptions and energy shocks that reverberated through the broader economy.

Today’s 4.2% reading is considerably lower, but the pinch households feel is real. The arithmetic of the household budget has become more exacting, and the businesses closest to those decisions are watching spending habits evolve in real time.