Inflation in the US has climbed to levels not seen since 2023, with the Guardian reporting that nearly two-thirds of Americans believe the country is experiencing a recession despite the stock market's gains. The surge comes as the US approaches midterm elections, with voters citing high prices as a key concern in their financial lives. According to the Guardian's recent poll with Harris Poll, 83% of Americans said gas prices are making a dent in their current finances, and a third said one surprise bill could sink them financially.
Inflation's trajectory has been volatile. When President Trump began his second term in January 2025, inflation stood at 3%. By April 2025, it had fallen to 2.3%, the lowest rate since 2021. However, after Trump imposed tariffs on US imports, inflation climbed back to 3% in September 2025. Following pauses and legal challenges to those tariffs, inflation fell to 2.4% in January and February 2026. The Iran war and its impact on oil prices then pushed inflation above 3.4% from May onwards, reaching 4.2% in May. Gas prices have been the primary driver of this latest surge. According to AAA, the average price of gas was $4.32 per gallon in mid-October, nearly $1.30 a gallon higher than a year earlier. In Texas, prices rose to $3.81 from $2.64 a year ago, while California drivers faced $6.21 per gallon.
The job market has stalled. In 2025, the US economy added 181,000 new jobs, compared with 2.2 million in 2024. Economists describe this as a "low-hire, low-fire" economy, with employers cautious due to stricter immigration policies, tariff uncertainty and higher input costs. The unemployment rate has remained just over 4%. Meanwhile, the Federal Reserve raised interest rates for the first time since 2023 in September, with Fed chair Kevin Warsh stating that "inflation is too high and has been for too long". Interest rates are now in a range of around 4.25% to 4.5%, with 30-year mortgage rates climbing past 7% after dipping below 6% in February.
The stock market has surged, but gains have largely benefited the wealthiest. Economists attribute the rally primarily to artificial intelligence investment by technology companies. The top 1% of Americans own nearly half of stock market investments, while everyday Americans struggle with tighter budgets from elevated prices. The Guardian reported that this divergence has created what economists call a "K-shaped economy", where the wealthy prosper whilst others face financial strain.