Inflation Expected to Outpace Income Growth in 2025

It’s not just the price of eggs that’s spooking consumers. 

Inflation is hitting American wallets hard and has quickly become the top financial concern in the US this year. More than half of adults say prices will increase in 2025 and that’s more than double those who expect prices to come down, according to a new report by Northwestern Mutual. For the second year in a row, the majority of Americans said household incomes aren’t keeping up with higher-for-longer inflation, which is now the top obstacle to achieving financial security. 

It’s a bleak new reality for clients who are juggling elevated costs for groceries, gas and housing, while trying to squirrel enough money away for retirement. “Regardless of the assets you have, it’s coming up in pretty much every conversation,” Northwestern financial advisor Ben Feldman said at a media dinner in New York City last week.

Inflate Your Expectations

It’s not just the average American family that’s feeling the squeeze, either. Four in 10 millionaires say their incomes are also growing slower than inflation, according to the annual survey of 4,626 US adults. Necessary everyday goods and services are having an outsized impact on consumers, with 48% of respondents citing childcare price increases as the biggest pain point. Respondent also said:

• Hikes to housing costs (45%) and the price of groceries (43%) are weighing on their budgets.
• Everyday needs — things like utilities bills that include water, electric, phone, and internet expenses (34%), as well as gas at the pump (33%) — are now major concerns.

While gas prices are actually “meaningfully lower” than they were 12 months ago, the perception of inflation is alive and well, said John Roberts, chief field officer at Northwestern Mutual. “Inflation is now far and away the largest barrier to individuals achieving financial security,” he said at the event.

Inflatable Slide. It’s quickly highlighting the need for financial planning at all asset levels. While some advisors are looking to the bond market as a reliable source of retirement income, judging by the inflation rate, equities will have to play a significant role, Feldman said.

“It’s easy to feel like, ‘I really gotta put something in securities,’” he said, adding that fixed-income investing is “barely  edging” out inflation. Long-term equity exposure also allows clients’ money to grow at a higher rate, and will help reinforce the benefits of buy-and-hold strategies. “We try to get an idea of how we can control the controllable,” he said.