John Mullen
Throughout recent economic history, inflation has been closely monitored as an indicator of economic stability and changes in the prices consumers pay for goods and services. Inflation can be influenced by many factors, including government deficit spending, monetary policy, supply constraints, interest rates, taxes, and consumer demand. When there are too many dollars chasing a limited supply of goods and services, prices can rise and place greater pressure on household budgets.
Fiscal policy is a powerful economic tool, and the level of federal spending can have a significant impact on economic conditions and, ultimately, what consumers must pay. Traditional economic measures such as money supply, gross domestic product (GDP), interest rates, inflation, and taxation remain important indicators for evaluating the health of the U.S. economy and comparing economic conditions around the world.
Federal Spending and Inflation
When President Biden was confronted with the economic threat created by COVID-19, the federal government increased spending to help prevent a deeper economic downturn. As the pandemic subsided, additional spending continued through programs such as the American Rescue Plan and the Inflation Reduction Act.
Critics of this approach argue that continued fiscal stimulus contributed to increased demand and added inflationary pressure as the economy recovered. The relationship between federal spending and inflation is complex, however, and inflation is also affected by factors such as supply chain disruptions, energy costs, labor markets, monetary policy, and global economic conditions.
The challenge for policymakers is finding the right balance between supporting economic growth and maintaining price stability and consumer affordability.
Inflation vs. Affordability
A newer concern receiving increasing attention is affordability. While inflation measures the rate at which prices are changing, affordability focuses more directly on whether individuals and families can comfortably pay for the goods and services they need.
Household affordability can be affected by the cost of:
Food and groceries
Housing and rent
Utilities
Gasoline and transportation
Vehicle expenses
Healthcare
Education and childcare
Insurance
Other everyday necessities
This makes affordability much more personal than a broad economic statistic. A relatively strong economy does not necessarily mean that every household feels financially secure.
Oil Prices, Fuel Costs and Consumer Affordability
One of the most immediate threats to consumer affordability can be the price of oil and gasoline. Energy prices affect more than what consumers pay at the pump. Higher fuel costs can increase transportation expenses and raise the cost of producing and delivering many other goods and services.
The ongoing war with Iran has added another layer of uncertainty to energy markets. If geopolitical tensions ease and crude oil prices decline, consumers could potentially see some relief in fuel and transportation costs.
At the same time, the broader U.S. economy can continue to demonstrate strength even while households face significant financial pressure. The economy reportedly added 168,000 jobs in August 2026, illustrating the complicated reality of today's economy: employment opportunities may remain relatively strong while the cost of everyday necessities continues to challenge household budgets.
Personal Financial Responsibility Matters
While government policy, inflation, interest rates, employment, and energy prices all influence affordability, individuals and families also have decisions within their control.
Practicing sound personal financial management can help households navigate periods of higher prices. Limiting unnecessary credit, maintaining a household budget, reducing excessive debt, saving when possible, and living within one's means are practical steps that can strengthen financial stability.
Financial education can also play an important role. Increasing opportunities to learn about budgeting, credit, saving, investing, and household finances through schools and online resources can help individuals make better financial decisions.
Looking Ahead
Inflation and affordability are closely connected, but they are not exactly the same issue. Inflation tells us how quickly prices are changing, while affordability asks a more personal question: Can families afford the goods and services they need?
A strong economy, employment opportunities, responsible fiscal policy, stable energy prices, and informed personal financial decisions can all contribute to better economic conditions for American households.
As consumers, we cannot control every economic factor, but we can make informed financial decisions and prepare for uncertainty.
I wish personal financial wisdom on all of us.
