The waning year 2025 may be defined by high levels of volatility, growing uncertainty surrounding labor market disruptions (mostly due to the inclusion of AI into corporate business models), sticky inflation components, a surge in gold and silver prices, passage of big spending bills that promise to pay off years from now, some tariff wars, a “forever war” in Ukraine, an indecisive Fed that can’t seem to decipher this K-shaped recovery and the S&P 500 chasing the 7,000 level — all as we approach New Year’s Eve.
Thank goodness for the holiday season, a time when consumers once again prove they are not to be denied a cheerful giving season. Black Friday and Cyber Monday were record-setting for online spending in the U.S., launching a huge holiday shopping surge. Black Friday set an online spending record, with consumers spending $11.8 billion (up 9.1% year over year). Then, Cyber Monday set a record as the biggest online shopping day of all time, with consumers spending a reported $14.25 billion (up 7.1%).
Despite the broad-based fear that the global economy may be contracting, the CRB index, which tracks a broad basket of 19 commodity futures, is trading higher due to a confluence of global supply-and-demand fundamentals and macroeconomic factors. The CRB index is up significantly over the last 12 months, driven by strength in agriculture and industrial and precious metals powering the overall index higher.
Translated, the Fed could find it harder to cut rates much beyond January, if input and food prices stay elevated. That said, all eyes are on the labor market and whether there is real contraction in new hires. If so, the Fed will be motivated to lower rates to inspire companies to borrow, expand and hire new workers.
Consumers cannot celebrate cheap gasoline prices in a vacuum. Other prices are rising, resulting in weaker consumer confidence data. The latest Fed survey has consumer confidence testing a 60-year low.
In a “K-shaped” recovery, the top 10% are doing fine, but the majority are not. Right now, the top 10% of U.S. households, defined by their wealth, own approximately 90% of all U.S. stocks and mutual fund shares, with the top 1% owning roughly 50% of all shares. The bottom 90% collectively own about 10%.
This chaotic economic imbalance partially explains why gold prices have soared, as the top 10% of U.S. income earners now account for nearly 50% of total U.S. consumer spending. This figure represents a record high for this data series and highlights the growing reliance of the U.S. economy on high-income households, which have benefited most from rising asset values (stocks and real estate). But it also shows a potential fragility among the 90% of households representing the other 50% of consumer spending.
This K-shaped division makes it a macro-economic priority that investors pay attention to the spending habits of those 90% of households living on tighter budgets and increasing their revolving lines of debt.
With mid-term elections approaching, both major parties have recognized that “affordability” is the most potent word to use in campaign messaging. The Trump administration is typically viewed as a referendum on the Republican outlook. However, high prices and dissatisfaction with the cost of living are considered a major vulnerability for Republicans. Most Democrats are campaigning heavily on the sentiment that the administration’s policies have led to lofty prices and a lower standard of living for working families.
While the overall inflation rate has moderated somewhat, the biggest pressure points have shifted from goods (like electronics) to services and specific non-discretionary essentials that are hard to substitute.
Based on the most recent data (through the end of the third quarter of 2025), here are the products and services that have become persistently pricey and are driving the highest rates of inflation:
- Housing (Shelter) — New and Existing Homes for sale, Rent and Owners’ Equivalent Rent (OER)
- Motor Vehicle Services, such as Auto Insurance, Repairs & Maintenance, etc.
- Energy Utilities — Natural Gas and Electricity Costs
- Essential Food Items, like Beef, Eggs and Sugar
- Health Care — Hospital Services and Medical Care
Beyond the top five, here are some other specific areas where consumers still feel “sticker shock:”
- Food away from Home: The cost of full-service and limited-service meals (restaurants and fast food) continues to rise faster than grocery prices, primarily due to high labor costs and rents.
- Household Furnishings and Operations: Furniture, bedding and general household goods have seen strong price increases, driven partly by previous supply chain snarls and new tariffs on imports.
- Travel: Airline fares have been volatile, and while they can drop seasonally, they are highly sensitive to jet fuel prices and strong consumer demand for travel.
- Subscription Services: Prices for major streaming and digital services (such as YouTube TV or Netflix) are continuing to increase as companies seek to improve profitability.
To summarize, the post-pandemic spike in inflation has kept prices elevated for many essential goods and services. There are both fiscal and administrative factors that contribute to why soaring prices that peaked at 9.1% in June 2022 continue to impact the great majority of households — like massive stimulus plans that injected trillions of dollars into the economy, an accommodative monetary policy (QE) that took rates to near-zero and a tight labor market. All led to wage increases that businesses pass on to consumers.
Both the Trump and Biden administrations have also enacted huge bi-partisan spending plans that flooded many markets with liquidity and chronic inflation. So, playing the blame game in this next election cycle doesn’t really solve the affordability problem, and shifting the blame won’t necessarily get anyone elected.
Providing greater supplies of commodities and homes is the best long-term solution to bringing prices down for shelter and goods. Prices in the services industries will likely remain stubbornly high unless AI replaces large numbers of jobs — something that is contributing greatly to the lower consumer sentiment.
It is early, but the party with the best path and plan to affordability will likely tip the 2026 political scales.
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