Even though the economy is growing and so are wages, their impact doesn't offset the rising costs of living for the average American.

According to the Fed’s annual household survey, 72% of adults said they were doing at least okay financially in 2023. That’s a notable drop from the recent peak of 78% in 2021.

The study found that inflation remained the “top financial concern” of Americans.

Nearly two-thirds (65%) of adults said higher prices “made their financial situation worse,” including 19% who said rising costs made their financial situation “much worse.”

Higher costs also showed up in the rental market, where 19% of respondents said they were behind on rent payments at some point over the year—an increase from 17% in 2022.

It may seem contradictory that adults said their economic well-being was unchanged even though inflation was eroding their financial stability.

But according to the Fed, that likely has to do with Americans still benefiting from a fairly steady job market and potentially spending below their means.

A third of respondents indicated that their monthly income increased year over year. Nearly half (48%) reported spending less than their income on a monthly basis.

The Fed study isn’t the only data point showing Americans’ frustration with rising costs. A recent Gallup poll found that 41% of Americans named inflation as their main financial concern, a new high.

Progress on inflation stalls

After peaking at 9.1% in June 2022, the U.S. Consumer Price Index (CPI) has fallen by nearly a third to the current rate of 3.4%. But that doesn’t mean inflation is going away—it’s just growing more slowly than before.

Since 2020, overall inflation has grown by 20%, with some categories, like energy and insurance, growing even faster.

Americans “feel increases in inflation are extremely salient,” said Francesco D’Acunto, a Georgetown University professor. “They feel this is very problematic and negative for their own finances.

“Prices still keep growing but at a slower pace,” he explained.

Meanwhile, inflation is picking up again. In the first quarter, consumer prices grew faster than expected and economists say the acceleration isn’t a one-off event.

Recent inflation data “pours cold water on the view that the faster readings in January and February simply represented the start of new-year price increases that were not likely to persist,” said Kathy Bostjancic, chief economist at Nationwide.

She thinks the “lack of moderation in inflation” will force the Fed to keep interest rates higher for longer, straining household budgets further.