Consumer Prices in the U.S. to Hit All-Time Highs in 2026, Top Economist Says

Source: Coindoo Original Title: Consumer Prices in the U.S. to Hit All-Time Highs in 2026, Top Economist Says Original Link: https://coindoo.com/consumer-prices-in-the-u-s-to-hit-all-time-highs-in-2026-top-economist-says/

Americans may enter 2026 feeling poorer even if the economy avoids a downturn, according to economist Steve Hanke. His argument is not built around job losses or collapsing growth, but around a quieter force he says is already shaping public mood - permanently higher price levels.

Hanke’s warning starts from a simple premise: inflation does not need to be high for prices to keep rising. As long as inflation remains positive, consumer prices will continue to set new records. That mathematical reality, he argues, all but guarantees that 2026 will bring fresh all-time highs for everyday costs, regardless of how reassuring economic data may look on paper.

Key Takeaways

• Prices are likely to reach new record highs in 2026 simply because inflation remains positive, even if it slows.
• Strong job numbers and wage growth may not improve sentiment as affordability pressures continue to weigh on households.
• The “money illusion” keeps frustration elevated, with consumers focusing on rising price levels rather than real income gains.
• The U.S. dollar in 2026 may be influenced more by weakness in foreign economies than by domestic conditions.

Why households don’t feel the “good economy”

Hanke believes official labor statistics miss the core issue facing most households. Low unemployment and rising nominal wages, he says, do little to ease frustration when rent, mortgages, groceries, and services remain expensive. For families below the median income, affordability has replaced job security as the dominant economic concern.

This disconnect helps explain why consumer sentiment can remain weak even during periods of solid growth. People judge economic health based on lived experience, not spreadsheets. When prices stay elevated month after month, the perception is that life is becoming harder, not easier.

The illusion that keeps frustration alive

At the center of Hanke’s view is what economists call “money illusion” – the tendency to focus on visible price levels rather than inflation-adjusted income. Even if paychecks rise, consumers react emotionally to higher numbers on price tags, rents, and loan statements.

Because prices rarely fall unless deflation sets in, that psychological pressure compounds over time. Slower inflation does not reverse past increases, meaning cost-of-living stress can intensify even as policymakers declare success in fighting inflation.

Why CPI highs may be unavoidable

Hanke expects the Consumer Price Index to push to new highs again by the end of 2026 unless the U.S. enters outright deflation, which he sees as unlikely. In his view, renewed acceleration in money supply growth increases the odds that inflation persists rather than fades away completely.

That dynamic, he argues, will deepen the gap between headline economic optimism and household reality. Strong employment may coexist with widespread dissatisfaction, creating a challenging environment for economic messaging.

Political pressure ahead

This backdrop could complicate matters for policymakers. Hanke suggests that visible affordability pressures are difficult to offset with rhetoric, particularly when voters anchor their views to housing costs and everyday expenses rather than wage statistics.

As long as prices remain at record levels, attempts to persuade the public that conditions are improving may fall flat, regardless of broader macro performance.

Why the dollar may hinge on the rest of the world

Hanke also sees 2026 as a year when the U.S. dollar’s fate is shaped less by domestic recession risk and more by weakness abroad. He points to Japan’s long struggle with low productivity and constrained money growth, China’s slowing nominal expansion, and recession-like conditions emerging across parts of Europe, including Germany and the United Kingdom.

If major economies continue to underperform, the dollar could remain resilient by comparison, even if U.S. growth cools. In that sense, the currency’s strength may reflect global weakness rather than domestic strength.

Taken together, Hanke’s outlook for 2026 is not one of collapse, but of persistent tension: prices staying high, affordability remaining strained, and public frustration lingering despite stable employment and growth.