4.2%
Headline CPI in May — the fastest annual pace in three years
~29%
Rise in the overall price level since the start of 2020
51%
Of Americans say the American Dream is out of reach for most people
48%
Say their finances are worse than a year ago — the most since January 2023
This week brought a remarkable cluster of economic news, and none of it was subtle. On Monday, the New York Fed reported that nearly half of American households say their financial situation is worse than it was a year ago — the highest share since January 2023. On Tuesday, CNBC and SurveyMonkey released a survey of more than 4,000 adults in which 51 percent said the American Dream is now out of reach for most people. Only 6 percent said it’s within reach for everyone. And on Wednesday, the Bureau of Labor Statistics reported that consumer prices rose 4.2 percent over the past year — the fastest pace since April 2023.
I’ve been saying for years that we are living in historic times. Weeks like this one are why. And underneath the week’s headlines sits a longer-running fact that deserves more attention than any single data release: by the government’s own Consumer Price Index, the overall price level has risen roughly 29 percent since the start of 2020. I’d encourage you to sit with that figure, because it means that in about six years, the dollars in a savings account, a CD, or a bond ladder quietly lost more than a fifth of what they could buy. No market crash required. No headline. Just a leak.
What's actually happening right now
Wednesday’s inflation report tells two stories at once, and both matter. The headline rate — 4.2 percent — is the highest in three years, and the cause is no mystery: energy. The conflict with Iran has sent oil and gasoline prices sharply higher, and energy accounted for the majority of May’s monthly increase. Energy prices are now up more than 23 percent over the past twelve months.
The second story is quieter. Core inflation — which strips out food and energy to show the underlying trend — rose just 2.9 percent. That’s still above the Fed’s target, but it is not the runaway broad-based inflation of 2022. What we have, for now, is an energy shock layered on top of an economy where underlying price pressure had been gradually cooling. Energy shocks can fade if the geopolitics resolve. They can also bleed into everything else — shipping, food, airfares — if they persist. Nobody knows which way this one breaks, including the people who claim to.
What we do know is that households are feeling it. The CEO of Kraft Heinz — a company that sells ketchup and macaroni and cheese, not luxury goods — put it about as bluntly as a food executive ever has:
“They’re literally running out of money at the end of the month. We’re seeing negative cash flows in the lower-income brackets where they’re dipping into savings.”
Steve Cahillane · CEO, Kraft Heinz
His company is responding by cutting prices on some products and shrinking package sizes — the food industry’s tacit admission that it pushed prices past what its own customers can absorb. The strain shows up elsewhere too: personal bankruptcy filings rose 8 percent year-over-year in May, and buy-now-pay-later services report that customers are increasingly using installment plans for gas and groceries — everyday purchases, not televisions. When people finance a tank of gas in four payments, the pessimism in those surveys stops looking like a mood and starts looking like arithmetic.
Why this lands hardest on retirees
If you’re still working, inflation has a partial antidote: your paycheck. Wages tend to follow prices upward, imperfectly and with a lag, but they follow. In retirement, that mechanism is gone. Your portfolio and your Social Security check are what stand between you and the price level, and one of those adjusts only once a year, using a formula that looks backward.
That’s why the piece of math worth holding onto isn’t about the past at all — it’s about the years ahead of you.
The math that matters
A 62-year-old retiring couple should plan for a retirement of 25 to 30 years. At a modest 3 percent average inflation rate — below what we’re experiencing right now — the purchasing power of a dollar is cut roughly in half over 24 years.
In other words: the price level you retire into is not the price level you will die in. A plan built to produce the same income at 87 that it produces at 62 isn’t a conservative plan. It’s a plan to become steadily poorer on schedule.
And here is the part that gets lost when the conversation focuses on the annual rate: the rate may well come back down — but the price level never does. The 29 percent is permanent. Disinflation means prices rise more slowly; it does not mean the grocery bill returns to 2019. Every retirement plan, every bond ladder, every “safe” allocation has to be built for a world where that ratchet only turns one way.
Historic times, familiar discipline
Half the country telling pollsters the American Dream is out of reach is a genuinely significant data point — not because surveys predict markets, but because sentiment that dark, sustained that long, eventually shows up in politics, in policy, and in spending. We are living through a stretch where an energy shock, a war, a strained consumer, and a skeptical public are all converging at once. That is historic, and pretending otherwise would be dishonest.
But the answer to historic times is not to predict which way they break. It’s to hold a plan that doesn’t need to know. That means owning assets with a credible claim on future purchasing power, not just future dollars. It means stress-testing income needs against prices that are 30, 50, 70 percent higher than today’s — because over a long retirement, they will be, even in the optimistic case. And it means treating inflation not as this year’s news story but as a permanent, structural feature of the landscape your money has to live in. The dollar has been leaking value — slowly, relentlessly — for a century. The households in trouble are rarely the ones who worried about it most. They’re the ones who never planned for it.
I’ve spent years telling clients we’re living in historic times, and I don’t use the phrase lightly. But the lesson of historic times is always the same one: the people who come through them well are not the ones who predicted them — they’re the ones whose plans never required a prediction in the first place. If your retirement income would still hold up with groceries half again as expensive, you’re prepared. If you don’t know the answer to that question, that’s the conversation worth having.
— Wilder
