Reviewed by Gotrade Internal Analyst
Jakarta, Gotrade News - Even though US labor data looks strong, consumer sentiment regarding the cost of living likely won't improve anytime soon.
Steve Hanke, Professor of Applied Economics at Johns Hopkins University, warns that prices are set to hit record highs in 2026.
According to Hanke in an interview with David Lin, low unemployment figures fail to capture the real economic anxiety Americans are feeling right now.
This is relevant for investors because high inflation perception can directly impact US economic policy and global market stability.
Key Takeaways
- Steve Hanke predicts US consumer prices will hit all-time highs in 2026 because inflation remains positive.
- The "money illusion" phenomenon makes consumers focus more on rising price tags than on real wage growth.
- The strength of the US Dollar going forward will depend heavily on how poorly competitors like China and Europe perform.
Read also: Santa Rally Paused: Why is Wall Street Seeing Red Ahead of 2026?
The Money Illusion Trap
Hanke points out that public frustration is going to stick around, even if jobs are available and nominal wages go up.
He explains that as long as inflation is positive, consumer prices will—by definition—keep setting new records, making the cost of living feel heavier.
This issue is compounded by what Hanke calls the "money illusion."
This happens when consumers focus on the sticker shock of rising prices without realizing their income might have adjusted too.
Hanke predicts the Consumer Price Index (CPI) will hit records again by the end of 2026, unless we see total deflation.
In his view, this is driven by the money supply starting to accelerate again in the US economic system.
Dollar's Fate Amidst Global Weakness
Beyond domestic prices, Hanke also highlights the outlook for the US currency, which is heavily influenced by external factors.
He notes that the fate of the Invesco DB US Dollar Index Bullish Fund or the US Dollar in 2026 will depend on overseas markets like Japan and China.
Hanke assesses that Japan is still facing tight monetary conditions with flat productivity growth.
Meanwhile, China is facing a tough challenge hitting its nominal GDP growth targets.
Hanke estimates that the country, whose market is often reflected in the iShares China Large-Cap ETF, will experience a de facto recession for missing those growth targets.
On the other side, Germany and the UK are already showing recession-like dynamics that could weigh on global sentiment.
In this scenario, the US Dollar might stay strong not because the US economy is perfect, but because other major economies are performing worse.
Read also: Warner Bros Likely to Say No to Paramount’s Massive Bid. Here’s Why
Reference:
- Finbold, Economist warns prices will soar to all-time highs in 2026. Accessed on December 31, 2025
- Featured Image: Shutterstock
Disclaimer
Gotrade is the trading name of Gotrade Securities Inc., registered with and supervised by the Labuan Financial Services Authority (LFSA). This content is for educational purposes only and does not constitute financial advice. Always do your own research (DYOR) before investing.
