The American economy presented two conflicting faces this week. On paper, growth accelerated and employers kept hiring at a steady clip. On the ground, households paid the most for everyday goods in three years, and shoppers eyeing a new laptop or tablet found prices climbing faster than wages. The split between strong macroeconomic data and a squeezed household budget has become the defining feature of the US outlook heading into the second half of the year.

Three forces are doing most of the damage to consumer sentiment. Petrol prices have surged amid the continuing conflict with Iran. A scramble among technology companies to secure semiconductors and memory chips for artificial intelligence infrastructure has pushed up the cost of consumer electronics. And mortgage rates have crept higher, making it more expensive to borrow for a home at the exact moment household budgets are already stretched thin.

The headline inflation gauge climbed to 4.1% annually in May, its highest reading since April 2023, and rose 0.4% on the month. Petrol was the chief culprit. Prices at the pump have risen sharply since the outbreak of hostilities with Iran disrupted oil markets, and the pass-through to transport and logistics costs has rippled across the wider basket of goods tracked by statisticians. Economists had expected the squeeze from energy markets to ease by now. Instead it has hardened into the most persistent driver of the headline rate.

A second, less familiar source of inflation has emerged alongside the energy story. Corporate spending on AI infrastructure has been so aggressive that it has created a genuine shortage of memory chips and semiconductors, and the scarcity is now showing up directly on the shelf. Apple has become the clearest illustration of the trend. The company has described its component cost increases as unprecedented, and has responded by raising retail prices across several product lines. Standard laptop models have gone up by $100, while premium tablets have risen by $200. Industry analysts expect other manufacturers to follow with similar increases as the chip squeeze persists through the year.

Against that backdrop, the Commerce Department's revised estimate for first-quarter GDP growth came as a surprise on the upside. The economy expanded at an annualised 2.1%, well above the earlier estimate of 1.6% and a marked recovery from the slump at the end of 2025, when a 43-day federal shutdown dragged on output. The rebound owes much to business investment, particularly the capital pouring into AI infrastructure and data centres, which has offset weaker spending elsewhere in the economy.

That weakness is concentrated squarely in the household sector. Consumer spending, which accounts for roughly 70% of US economic output, has fallen sharply as families pull back on discretionary purchases to absorb higher costs for fuel, groceries and now electronics. The contrast is stark: businesses are investing at a pace that is lifting the headline growth figure, while the households who ultimately buy their products are tightening their belts.

Housing has added a further layer of pressure. The 30-year fixed mortgage rate has risen to 6.49%, and the 15-year fixed rate now stands at 5.84%. For prospective buyers already grappling with higher grocery and fuel bills, the increase compounds an already difficult affordability picture and has kept many would-be purchasers on the sidelines.

One bright spot has held steady throughout. Weekly jobless claims fell to 215,000, beating analyst expectations and suggesting employers are still reluctant to shed staff despite the uneven picture elsewhere. The labour market's resilience has been the one constant analysts can point to with confidence.

Markets closed the week with a similarly mixed tone. Oil prices have stabilised back to levels seen before the conflict began, helping the broader market finish in positive territory. Technology stocks fared worse, falling under pressure as investors began reassessing the valuations attached to AI-related companies after months of rapid gains.

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