by Alexander Wissel, Executive Editor
“What will inflation do in 2026?” is one of the most consequential economic questions we’re being asked as we start the year. Inflation and rising food costs is reshaping how consumers shop, what they buy, and where they make tradeoffs.
Data released by the Fed this week showed us that headline inflation rates alone do not explain how inflation is actually experienced by shoppers.
A 2026 research report released by the Federal Reserve Board titled (and we aren’t making this title up) “A New Reason to Hate Grocery Inflation: Measuring and Interpreting Inflation Heterogeneity.” It delivered some really interesting data points about inflation and its household effects.
The study found that during the 2021 to 2022 inflation surge, households did not experience price increases evenly — in some cases, not even close.
Effectively the increased cost difference between households could be as large as $560 for low income households and $1,150 for higher incomes. That equates to an additional $500 to $600 difference range due to inflation.
Just as one region cannot represent the entire country, this research makes clear that inflation must be understood across different consumption patterns and income levels to accurately reflect its real-world impact.
Before going further, it’s worth anchoring our discussion with a simple question: Would you rather have $100,000 today — or $100,000 in 1976?
In 1976 that $100k would have the buying power of almost $570k today. Inflation steadily erodes purchasing power over time, even when year-to-year changes appear modest. This is an important concept that we’ll come back to in a moment.
What Inflation May Look Like in 2026
Predictions about inflation have a way of humbling even the most confident forecasters. After all, economic outcomes are shaped not just by models, but by shocks, timing, and policy interactions from real people that are difficult to anticipate.
What we do know is that near-term food price outlooks remain incomplete. Updated USDA Food Price Outlook forecasts are expected later in January, while some late-2025 data has yet to be fully incorporated.
As of now, the U.S. Department of Agriculture’s Economic Research Service states:
“In 2026, overall food prices are expected to increase more slowly than the historical average rate of growth. Prices for all food are predicted to increase 2.7%, with a prediction interval of -1.8% to 7.5%. Food-at-home prices are predicted to increase 2.3%, with a prediction interval of -4.3% to 9.6%, and food-away-from-home prices are predicted to increase 3.3%, with a prediction interval of 0.7% to 5.8%.”
A prediction interval reflects the statistically likely range of outcomes. What stands out here is how wide those ranges remain, even this close to the year in question. That alone should give us clear signals of continuing cost uncertainty.
How the Fed ‘Manages’ Inflation
We can also glean some insights from our monetary policy to figure out a good approximation as to what might happen this year.
As of early 2026, U.S. federal debt stands at approximately $38.5 trillion. Servicing that debt requires ongoing interest payments, which have risen materially in recent years and now represent a significant federal expense. It’s higher than our military budget if that’s an indicator.
As a nation we literally cannot afford to have interest rates go too high.
If that happened we’d default almost immediately as payments climbed. It gets trickier considering that raising interest rates is one of the few levers that the Federal Reserve has to combat inflation.
Reported inflation is running near 2.7%, above the Federal Reserve’s long-term 2% target. Many analysts place underlying inflation closer to 3%, while real wage growth has remained relatively flat.
Taken together, this suggests an environment where inflation has moderated from its peak but remains structurally persistent, while policy flexibility is constrained. It stands to reason that we will see higher inflation for a far longer time period than expected.
Over time this elevated inflation will have a secondary effect: it gradually reduces the real value of outstanding debt. While not an explicit policy objective, it helps explain why – behind closed doors – inflation tolerance may remain higher than they are willing to acknowledge.
In summary, we expect to see an environment with lower interest rates and persistent inflation above reported guidelines.
Editor’s Note: If you’d like some ‘light’ reading and love mathematical equations, check out: A New Reason to Hate Grocery Inflation: Measuring and Interpreting Inflation Heterogeneity. If you’d like to take a sobering look at the debt clock, check out the National Debt Clock… it’s a little astounding.
