US consumer momentum slows as inflation squeezes incomes: Fitch Ratings

Fitch Ratings-New York: US consumers are still spending, but inflation pressure is eroding real income growth and narrowing the cushion behind consumption, according to a new Fitch Ratings report. Lower oil prices could ease the squeeze if sustained, while stable labor market conditions and solid balance sheets should keep the slowdown contained but uneven through 2H26. “Consumption is not rolling over, but real income support has weakened as inflation has picked up again,” said Olu Sonola, Head of U.S. Economics at Fitch Ratings. “Household balance sheets remain solid, but lower saving buffers mean spending growth is likely to become more uneven.” Real consumer spending growth eased to 1.4% qoq annualized in 1Q26, after averaging 2.6% in 2025. Stronger May retail sales point to near-term resilience, but inflation-adjusted spending power remains under pressure and consumption growth is still likely to slow. Fitch expects consumer spending growth to slow to 1.7% in 2026. Income trends are a drag. Nominal disposable personal income growth slowed to 2.6% yoy in April 2026 from 5.1% a year ago, while real disposable income fell 1.1% yoy from2.8% a year ago. CPI inflation rose to 4.2% yoy in May from 3.8% in April, and Fitch has revised its end-2026 CPI forecast to 3.7% from 3.0%. Household wealth remains an important support, particularly for higher-income households, with equity gains lifting net worth to about 803% of disposable income in 1Q26. However, the saving ratio fell to 2.6% in April, limiting households’ capacity to absorb price shocks. Debt-service burdens remain manageable, and mortgage delinquency performance is contained, but elevated auto and credit-card delinquencies point to pockets of affordability stress. Higher-income households should continue to benefit from wealth effects, while lower- and middle-income households face greater strain from living costs and borrowing rates, pointing to uneven spending through 2026.