The December inflation story is increasingly about distribution, not averages. While economists highlighted stabilization in core inflation (excluding food and energy), the categories most visible to households. groceries, utilities, and health care. kept climbing, worsening a “K-shaped” economy where higher earners stay comfortable and everyone else absorbs the squeeze, according to rising necessities costs.
The who and where: lower-income households, which spend a larger share of income on food and energy, are taking the brunt as staples rise. NBC notes electricity prices were up nearly 7% last year and natural gas posted double-digit gains, while grocery increases were broad-based in December. Meanwhile, Bank of America data cited by NBC says the top 5% of consumers drove the bulk of spending gains through late 2025, continuing to spend on travel and dining while lower-income consumers pulled back on nonessentials like hotels and entertainment, per top 5% spending.
Why it matters now: this split can keep headline growth afloat even as the median household feels worse off. That’s a sharp setup for policy risk in 2026, because political pressure tends to focus on the highest-visibility prices. The White House is already leaning into affordability messaging. President Trump pitched affordability as a top priority in a Detroit Economic Club speech and has floated actions ranging from mortgage bond purchases to a temporary credit card rate cap, per affordability push.
How this hits markets and business: if consumption increasingly relies on a narrow high-income cohort, retailers, travel firms, and discretionary brands may see bifurcated demand. Premium holds up, value competes harder. At the same time, the Fed can’t cut aggressively if “necessities inflation” keeps re-asserting itself. Cutting too fast risks re-igniting price pressures, but holding too long risks labor-market downside. Both outcomes raise volatility in consumer-facing earnings.
What to do with it: watch whether staples inflation cools in Q1 without a meaningful jobs deterioration. If not, expect louder political moves on affordability and more uneven consumer demand. Portfolio and planning decisions should lean into resilience. pricing power and balance-sheet flexibility. rather than assuming a broad-based consumer reacceleration.
