The cost of living is dominating the economic landscape in the United States ahead of the midterm elections scheduled for November 3, 2026, amid accelerating inflation, slowing job growth and declining real wages, despite continued economic expansion. Rising energy, housing and food costs are emerging as some of the main challenges facing American households before voters head to the polls.
Real gross domestic product (GDP) grew at an annualized rate of 2.2% in the second quarter of the year, following 2.5% growth in the first quarter, supported by consumer spending, investment and exports. Real final sales to private domestic purchasers rose by 4.6% year on year, while real gross domestic income increased by 2.6%.
The estimate for second-quarter growth was revised upward from 1.5% to 2.2% following the annual revision of the national accounts. Actual growth between the first and second quarters was approximately 0.6%. These figures indicate that the economy continues to expand, but this does not necessarily translate into a corresponding improvement in the purchasing power of all households, particularly as the cost of essential goods and services rises.
Energy drives accelerating inflation
Data for September, released on October 14, showed that the Consumer Price Index (CPI) rose by 0.6% month on month and 3.7% year on year, compared with 3.4% in August. Core inflation, which excludes food and energy prices, increased by 0.3% month on month and 2.6% year on year.
Energy, particularly gasoline, was among the main drivers of price increases. Gasoline prices rose by 9.1% in a single month, accounting for more than half of the monthly increase in the overall price index. Year on year, gasoline prices climbed by 34.2%, while the overall energy index rose by 20.4%.
The housing index also increased by 0.4% in September, electricity prices rose by 4.4% year on year, and food prices increased by 2.5%.
According to the report, pressure on energy prices is linked to geopolitical developments, the conflict with Iran and disruptions to energy supply chains originating in the Middle East. The University of Michigan noted that current inflation expectations exceed the 3.4% level recorded in February, before the war with Iran began.
The Producer Price Index for final demand rose by 6.3% year on year in September, marking its largest annual increase since December 2022. This could indicate continued cost pressures on businesses, transportation and services, although it does not necessarily mean that the entire increase will be passed on to consumers immediately or in full.
Slower hiring and declining real wages
In the labor market, the US economy added just 29,000 jobs in September, while the unemployment rate rose to 4.2%, compared with 4.1% in August. The labor force participation rate also increased, from 61.6% to 61.8%.
Previous estimates of job growth were revised downward, with July’s figure cut from a gain of 21,000 jobs to a loss of 10,000, and August’s figure reduced from 162,000 to 133,000. September’s total fell below the average monthly increase of 45,000 jobs recorded over the preceding 12 months.
These figures alone do not indicate a widespread wave of layoffs, but they reflect a slowdown in hiring that could make it harder for new job seekers, young people and workers seeking better positions to find suitable opportunities or negotiate larger pay increases.
Average nominal hourly earnings for private-sector employees rose by 0.1% in September and 3% year on year, an increase approximately 0.7 percentage points below the annual inflation rate. After adjusting for inflation, average real hourly earnings fell by 0.5% during the month.
Surveys reveal cost-of-living pressures
A Gallup survey published in April 2026 found that 55% of Americans said recent price increases had made it difficult for them to maintain their standard of living.
In another measure cited by the organization, 55% said their personal financial situation was getting worse, a figure Gallup described as unprecedented in its published series. Some 31% identified inflation and rising prices as the biggest financial problem facing their households, while 13% cited energy costs and another 13% pointed to housing costs.
Data from the Pew Research Center showed that 44% of American adults had struggled during the preceding 12 months to afford at least one basic necessity, including medical care, daily transportation, rent or mortgage payments, or obtaining food from a food bank or pantry.
The figure rose to 71% among lower-income adults, according to surveys conducted between July 20 and August 30, before the inflation spike recorded in September. The findings highlight how rising costs affect social groups differently, as lower-income households devote a larger share of their resources to basic necessities, making increases in fuel, rent and electricity particularly burdensome.
Consumer sentiment declines
The University of Michigan’s preliminary Consumer Sentiment Index for October stood at 46.3 points, down from 48.1 in September and 53.6 a year earlier. It remained close to the record low of 44.8 points recorded in May 2026.
Inflation expectations for the coming year rose from 4.6% to 4.7%, while long-term inflation expectations increased from 3.4% to 3.5%. The current economic conditions index fell from 50.9 to 44.7 points, while the expectations index rose from 46.3 to 47.3 points.
The university reported a decline in sentiment among lower-income households and people with smaller investment portfolios, groups that are less able to absorb rising prices. Together with inflation expectations, these indicators reflect consumers’ concerns that cost-of-living pressures will persist in the coming period.
Cost of living varies across states
Living costs differ across US states according to price levels, rents, incomes and economic growth. There is no single official monthly Consumer Price Index reading covering every state, but price-level data, regional inflation figures and income statistics illustrate some of these differences.
According to the latest available regional price parity data for 2024, California recorded the highest price-level index at 110.7, followed by Hawaii at 110, the District of Columbia at 109.9 and New Jersey at 108.8, compared with a national average of 100.
By contrast, the index stood at 86.9 in Arkansas, 87 in Mississippi, and 87.8 in both Iowa and Oklahoma.
Differences were even more pronounced in housing costs. The housing rent index reached 154.3 in California and 155 in the District of Columbia, compared with 54.2 in West Virginia.
In terms of regional inflation in September, the annual rate reached 4.2% in both the Northeast and Midwest, exceeding the national average of 3.7%. Small and midsize cities in the Midwest recorded inflation of 4.8%, compared with 3.4% in both the South and West.
Among selected metropolitan areas, annual inflation reached 4.5% in the New York–Newark–Jersey City area, 4.4% in Seattle–Tacoma–Bellevue and 4.2% in Philadelphia, compared with 1.3% in Houston.
Differences also extend beyond prices. Real GDP grew in 44 states and the District of Columbia during the second quarter of 2026, but growth ranged from 4% in New York to a contraction of 2.3% in West Virginia.
Personal income growth ranged from an increase of 6.4% in Wisconsin to a decline of 4.2% in North Dakota. Growth in labor income ranged from a 7.3% increase in Minnesota to a 9.3% decline in North Dakota. These figures show that assessing cost-of-living pressures requires considering prices, income and employment opportunities together, rather than looking at price levels alone.
States take measures to ease fuel costsStates cannot control national inflation or global oil prices, but they can influence some household expenses through taxation, regulation, and housing and energy policies.
According to a report published on October 6, 2026, Georgia, Indiana, Ohio and Utah had introduced temporary measures to suspend or reduce state gasoline taxes. In addition, 10 states had eased restrictions on the use of tax-exempt diesel in sectors such as agriculture, transportation and certain off-road activities before a similar federal measure was issued.
The impact of these measures remains limited because state governments do not control oil prices, refining and transportation costs, or geopolitical developments. Cutting fuel taxes may also reduce revenue allocated to roads and infrastructure unless the shortfall is covered by reserves or alternative funding.
In the longer term, housing policies affect affordability, including zoning rules, permitting speed, land availability, tenant protections and property taxes.
Policies governing electricity and utilities, insurance, minimum wages, sales taxes and income taxes also help determine the costs borne by households.
The Federal Reserve faces a choice between inflation and borrowing costs
Amid price pressures, the Federal Reserve raised its benchmark interest rate by a quarter of a percentage point on September 16, 2026, bringing the target range to 3.75%–4%. It was the first rate increase since 2023. The Federal Reserve said economic activity was expanding at a solid pace and domestic spending remained resilient, but inflation continued to run high.
Minutes of the meeting, released on October 7, showed that most participants considered another increase in the target range likely to be appropriate by the end of the year.
Monetary policy presents households with a double-edged challenge. Higher interest rates may help bring inflation down over time, but they also keep borrowing costs elevated for credit cards, car loans and new mortgages.
Conversely, easing monetary policy too quickly in an inflationary environment could increase concerns about continued price increases.
The next meeting of the Federal Open Market Committee was scheduled for October 27–28, six days before the election. According to the report, markets expected interest rates to remain unchanged at the October meeting, while a December increase was considered more likely. This suggested that borrowing costs could remain elevated after the election.
The Personal Consumption Expenditures (PCE) Price Index is particularly important because it is the Federal Reserve’s preferred measure for monitoring inflation. The index stood at 3.4% year on year in August, while the core index recorded 3%. September’s data were scheduled for release on October 29, 2026, alongside the advance estimate of third-quarter GDP, five days before the election.
Cost of living enters the election debate
The cost of living is an important factor in how voters assess economic conditions, amid accelerating inflation, declining real wages and slower hiring, as well as the difficulties affording basic necessities reflected in public opinion surveys and falling consumer sentiment.
However, it cannot be concluded that inflation and the cost of living alone will determine the outcome of the midterm elections. Results are also influenced by local candidates, party affiliation, immigration, healthcare, foreign policy, turnout and the characteristics of electoral districts.
The gap between macroeconomic indicators and households’ daily experiences remains a central challenge. Continued economic growth does not necessarily mean that incomes are sufficient to cover expenses, particularly when fuel, housing, energy and debt-servicing costs consume a growing share of household budgets.
