Consumers Expect Inflation to Stay High and Financial Stress to Rise

Inflation expectations are steady, but households are not. The latest results from the Federal Reserve Bank of New York released on Monday (Dec. 8th) show consumers believe prices will continue rising while personal financial conditions are poised to deteriorate.

Inflation Expectations Steady But Uneasy

According to the November Survey of Consumer Expectations, median one-year-ahead inflation expectations remained unchanged at 3.2%, with three-year and five-year horizons steady at 3%.

Within key spending categories, consumers anticipate sharper cost increases. Expected year-ahead medical care inflation reached 10.1%, its highest reading since January 2014, and rent expectations rose to 8.3%.

Uncertainty around inflation did not improve. Consumers expect food prices to rise 5.9% over the next year and gas to increase 4.1%.

Figure: Inflation Expectations

Expectations for household spending growth rose to 5%, which exceeds expected income growth at 2.9%. The result is a persistent perception of financial strain even as overall inflation readings stabilize.

Income Expectations Reveal Tension

Households expect income to grow, but not at a pace that closes the affordability gap.

Consumers facing this imbalance anticipate using more of their paychecks on necessities.

PYMNTS Intelligence research shows many consumers experience income volatility that makes planning more difficult. Roughly two thirds of U.S. adults lived paycheck to paycheck, and as we’ve found, 42% did so out of necessity because they have no other choice, an 18% jump since August.

Six in ten consumers earn their primary income outside fixed salaries, particularly through hourly, gig and contract work, but those income streams can be sporadic.

Figure: Job Prospects

That instability shapes spending and financial confidence more than headline inflation data. Consumers who rely on variable earnings struggle to plan ahead and often must react to rising prices rather than anticipate them.

Financial Instability And Budgeting Behavior

Consumers are worried about their ability to control their financial situations. The New York Fed reported that perceptions of current household financial health deteriorated, with a larger share of respondents saying they are worse off than a year ago. Expectations about year-ahead conditions also declined, with fewer consumers anticipating improvement.

PYMNTS has also found that budgeting tools represent a clear but underused opportunity to reduce financial stress. Nearly seven in ten consumers live paycheck to paycheck, and 24% say they feel highly anxious about their financial situation. The NY Fed found that Credit access expectations deteriorated, with a smaller share of respondents expecting easier borrowing conditions.

Advanced budgeting tools can help. Among respondents struggling to make ends meet, more than half of those using advanced budgeting apps reported feeling financially comfortable, compared to only 12% of those using basic tools. Yet daily budgeting reminders remain rare. Only 14% of consumers receive daily nudges, even though 54% of those who do feel comfortable with their finances.

Income instability also influences payment choice. Households living on hourly wages or gig work must manage variable cash flow and may be more likely to use digital wallets and banking apps that support real-time balance visibility and budgeting reminders.

Better budgeting tools, real-time spending reminders and income smoothing features could give consumers confidence when prices are uncertain and income is uneven. The demand is there. The usage is not. And that mismatch may help define a coming wave of innovation within financial services.