Inflation relief is on the way - if these 3 market forces can come together

By Morey Stettner Productivity gains, tame oil prices and lower taxes could ease the pressure on consumers Many Americans are finding that their incomes can't keep up with rising prices. When it comes to inflation, the official data tell one story. The experience of people often tells another. That's what happened in 2025. Consumer-price index (CPI) statistics indicated a gradual easing of inflation from the higher levels of the previous two years. But many shoppers continued to perceive persistently high prices as a stranglehold on their finances. Whether they priced cars or a pound of beef at the supermarket, the sticker shock remained. To track inflation, the Federal Reserve closely monitors the core personal-consumption expenditure (PCE) price index, which doesn't include food and energy costs. It rose 2.9% in the third quarter of 2025 (July-September), up from 2.6% in the second quarter. U.S. inflation rose 2.7% in the past 12 months through December, according to U.S. CPI data released on Jan. 13. Core inflation (excluding food and energy) was up 2.6% over the same period. But because disposable personal income rose just 2.8% and the personal savings rate dropped to 4.2%, many Americans are finding that their incomes can't keep up with rising prices. How will inflation impact shoppers in 2026? A closer look at different sectors of the economy shows that inflation doesn't affect all goods and services the same: Prices ease up for some items while other costs remain under pressure. "We see shelter disinflation in 2026," said Emily Roland, co-chief investment strategist at Manulife John Hancock Investments. "The Case-Shiller [home price] index peaked in February 2025. It's slowly been decelerating and that will continue in 2026," resulting in slowing housing prices. On the other hand, some consumer goods might keep going up. "We see some tariff-driven inflation in apparel and household furnishings," Roland said. "That's one area where there's some potential for inflation in 2026." Offsetting the impact of tariffs on inflation is the willingness of high-end consumers to keep spending. "The top 10% of earners account for about half of all spending in the U.S.," Roland noted. "That can help overcome tariff-driven inflation." When it comes to your own overall spending, the impact of inflation will almost certainly linger for at least the first half of the year ahead. "The level of prices is still high," Roland said. "It's not back to pre-COVID levels. We've had this explosive rate of inflation and it's going to take time to completely wring out after such an explosive, COVID-driven event." But she cited three factors that may tame inflation in 2026: productivity gains, lower oil prices, and the effects of the federal government's massive tax and spending bill that passed in July 2025. "It's a game of patience," Roland added. Another encouraging sign is the global inflation slowdown. Brazil and Mexico - Latin America's two largest economies - have reported lower annual inflation. Eurozone inflation is also down from its 2022 peak: Core inflation in Europe was 2.3% in the year through December, down from 2.4% in November, while the annual rate of services inflation fell to 3.4%, compared to 3.5% in November. Stephanie Temporiti, a financial adviser in St. Louis, takes a long-term view, She said the Fed may again fail to hit its 2% inflation target this year, but that is no cause for alarm. "Inflation is a normal part of a growing economy," she noted. "Prices will go up over time." Consumers aren't always defenseless against rising prices. But combating the impact of inflation means researching your options - and that takes time and effort. When Temporiti's clients complain about the higher cost of travel, for example, she has what she calls "a values conversation" with them. "If travel is important to you, be a little bit more strategic and plan a little bit more," she might tell them. Join membership clubs to nab the best hotel or group-tour deal. Book a cheaper, nonrefundable airfare and, if worried you won't make the flight, consider travel insurance. "I know some people don't want to get into the details of travel planning," she said. "But the extra effort can make your dollar stretch further." -Morey Stettner This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 01-15-26 2056ET