The U.S. consumer has absorbed five-plus years of above-target inflation, but the cushions that enabled that resilience are thinning. Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said the combination of four months of rising energy costs and persistent non-energy price pressures has left households—particularly in Middle America—with a narrowed capacity to absorb the next shock.
The mechanics of that erosion are visible in producer price data. Producer prices are re-accelerating to 6.5 percent year-over-year. Core producer prices sit at 4.9 percent year-over-year. Core finished consumer goods—stripping out food and energy—are rising at 3.5 percent year-over-year. Those figures show businesses have not finished passing higher input costs through to end buyers, even as consumer resistance to price increases grows.
The services side of the inflation picture is equally resistant. Super core inflation—core services excluding shelter, the metric the Federal Reserve uses to gauge underlying price momentum—is running at 3.5 percent year-over-year. With the labor market remaining tight, there is a floor under how far that measure can fall. Services businesses with high labor cost structures have limited room to cut prices even if demand softens.
Housing adds a third vector of stickiness. There are no signs of deflationary pressure from the housing market, which remains tight by historical standards. Shelter costs account for a large share of core consumer price readings, and without relief there, headline core figures stay elevated even if goods prices moderate.
Energy complicates the picture in a specific, time-stamped way. West Texas Intermediate oil at around $75 per barrel means energy will continue to push headline inflation higher on a year-over-year basis through Feb. 2027—nine more months of what RBC characterizes as "ugly" headline data. That comparison base effect is backward-looking, reflecting an energy shock that has already occurred rather than fresh price pressures, but it will dominate the headline numbers consumers and policymakers see each month through early next year.
Federal Reserve Chair Kevin Warsh has flagged this dynamic as a concern. Consumer prices have run above the Fed's 2 percent target for well over five years, and Warsh has expressed particular discomfort with that sustained overshoot. The combination of lingering goods inflation driven by tariffs, sticky services prices supported by tight labor and a housing market that won't clear creates a non-energy inflation problem that cannot simply be waited out.
RBC's view is not outright bearish on the U.S. economy. The firm maintains a cautiously optimistic outlook built on two structural supports: a K-shaped consumer base in which high-income households remain resilient, and a labor market tight enough to keep employment—and therefore wage income—stable for most Americans. Tax refunds, accumulated savings and manageable debt loads gave the consumer meaningful shock absorbers through the early part of 2026.
But those buffers have been drawn down. Four months of rising energy costs consumed household capacity that cannot be quickly rebuilt. Calvasina's team describes the lower- and middle-income consumer as increasingly at risk from any additional shock—whether that comes from supply chain disruptions pushing food prices higher or a fresh round of tariff pass-through in goods. Food is the one consumption category households cannot substitute away from, making any upside surprise there disproportionately damaging to spending capacity.
The shift in pricing power is the most structurally significant data point in RBC's analysis. For the first time since the pandemic, businesses are running into resistance when they try to raise prices. That is a change in the economic environment that matters for equity earnings: if companies cannot pass input cost increases through to consumers, margin compression follows. Calvasina watches this channel closely given its direct read-through to U.S. corporate earnings estimates.
Sentiment data corroborates the caution. The American Association of Individual Investors survey net bulls reading came in at negative 37.8 percent in the most recent week, with the four-week average at negative 27.3 percent. Calvasina said those figures are "yellow flags" worth monitoring rather than definitive recession signals.
The peak in headline inflation is likely behind the economy. RBC does not make that same call for non-energy inflation, which has more structural support. The firm's base case holds that the United States avoids a sharp consumer-led contraction, supported by employment and high-income household spending. The assumption that falling energy prices will unlock a new leg of consumer spending acceleration does not survive contact with the underlying data on services, goods and housing prices—all of which remain above levels consistent with the Fed's target.
