As the Fed cuts interest rates in an environment where prices remain stubbornly high, policymakers may be severely underestimating the risk of another inflation breakout.
While official gauges show consumer prices still rising faster than the Fed’s 2% target, alternative measures suggest the pain is far worse.
The True Living Cost (TLC) index — an inflation gauge focused on essential household expenses such as housing, medical care, groceries, and transportation — surged roughly 30% faster than the Consumer Price Index (CPI) between 2001 and 2023, according to data from the Ludwig Institute of Shared Economic Prosperity.
‼️US inflation is materially UNDERSTATED:
undefined Global Markets Investor (@GlobalMktObserv) October 1, 2025
The True Living Cost (TLC), an alternate inflation metric focusing on essential household expenses, SURGED 30% faster than the CPI in 2001-2023.
TLC shows medical costs nearly TRIPLED during this time while CPI says they only doubled. pic.twitter.com/IgBD4hxhhV
In other words, inflation for the goods and services families can’t avoid has run far hotter than the headline numbers suggest.
Medical care and housing have been the biggest contributors, with the TLC showing medical costs nearly tripling and housing costs climbing far ahead of CPI.
This aligns with what many Americans are experiencing firsthand: rising premiums, deductibles, rents, and mortgage payments that outpace wage gains.
Apollo chief economist Torsten Slok recently noted that 72% of CPI basket components are rising faster than the Fed’s 2% target on an annualized basis, well above the pre-pandemic average of roughly 57%.
That breadth of price acceleration underscores the challenge of declaring victory over inflation too soon.
U.S. consumer sentiment is weakening
Lingering inflation concerns helped drag down U.S. consumer sentiment in September, highlighting the persistent strain rising costs are placing on household finances.
The University of Michigan’s Consumer Sentiment Index fell to 55.1 from 58.2 in August, slipping back toward levels last seen during the “Liberation Day” tariff scare in April.
Perhaps more troubling, sentiment is now weaker than 99% of all historical readings dating back to 1952, according to market strategist Charlie Bilello.
Yet, in a curious twist, consumers say they feel worse even as they continue to spend. U.S. retail sales rose 4.8% year-over-year in August, outpacing the rate of inflation.
“We’ve never seen a disconnect this wide between what the U.S. consumer is saying and what they are doing,” Bilello wrote.
The University of Michigan Consumer Sentiment index has moved down to 55, a reading below 99% of historical data points going back to 1952.
undefined Charlie Bilello (@charliebilello) October 1, 2025
But at the same time, US Retail Sales grew 4.8% over the last year, outpacing inflation by 1.8%.
We've never seen a disconnect this wide… pic.twitter.com/bD5DbHjM4t
A growing share of that spending is concentrated in non-discretionary categories and increasingly financed through credit cards, suggesting households are sustaining living expenses despite mounting financial pressure.
Credit card balances have surged in tandem, climbing 5.8% year-over-year to a record $1.21 trillion, according to data from the New York Fed.
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