From “New Normal” to “No Normal”

On its face, Thursday’s inflation report was good news. Wholesale prices were flat from June to July (economists expected a 0.2 percent increase), and the year-over-year rise in the Producer Price Index slowed to 4.7 percent, down sharply from 5.5 percent in June. After a spring and summer of resurgent inflation, any cooling is welcome.

The wholesale report follows a consumer-price reading that was similarly mild: up just 0.1 percent in July after an outright decline in June, with core inflation easing to 2.5 percent over the past twelve months, down from 2.9 percent in May. Headline CPI still runs a too-high 3.4 percent, but much of that reflects the energy spike set off by the Iran conflict.

But look under the hood. Nearly all of July’s wholesale relief came from energy: gasoline prices fell 5.7 percent, and crude petroleum dropped almost 12 percent; prices that have swung wildly with events in the Gulf all year and could swing right back. And there is a less comfortable explanation for why producers aren’t raising prices: they may not be able to.

Real average hourly earnings fell in July, and real incomes for most workers haven’t grown in a year. When wholesale prices go flat while paychecks are shrinking in real terms, one possibility is that demand downstream – from businesses, and ultimately from households – is slowing. Cooling inflation is good news, unless the thing doing the cooling is the consumer.

For the past several years, the operating assumption in Washington and on Main Street was a “New Normal”: inflation and interest rates higher than the pre-pandemic era, but settling into something predictable that families and businesses could plan around. 2026 retired that assumption. Inflation faded, re-surged, and is now cooling again for reasons no one can quite agree on. Consumer sentiment rose in early July and fell by month’s end. Markets that priced in a September rate increase now look to October or December, and a new Fed chair who has sworn off forward guidance means markets will no longer be told in advance what the central bank intends to do. Gas prices take direction from events half a world away.

This isn’t a “New Normal.” It’s “No Normal”; an economy that changes its story month to month and asks that American households budget for it accordingly.

Consumer lenders have been watching this shift from the front lines, and AFSA’s most recent Consumer Credit Conditions (C3) Index caught it in real time. In our Q2 survey of finance company executives, the outlook for business conditions over the next six months fell to the lowest reading in the survey’s history. More than half of lenders reported deterioration in their subprime portfolios. And yet the same survey shows total loan demand jumped to its strongest level since late 2024, with subprime credit demand rising for the third straight quarter. Weakening household finances and rising demand for credit, at the same time: when paychecks stop keeping up with prices, families may borrow to bridge the gap before they stop spending altogether. That is exactly what a slowing economy looks like from the lender’s side of the desk, and lenders were reporting it weeks before it showed up in the wholesale price data.

In a “No Normal” economy, the case for protecting access to credit only grows stronger. Families can’t time the transmission failure or the broken water heater to the month the data cooperates. Reliable, transparent installment credit is the shock absorber that turns an unpredictable economy’s surprises into manageable payment plans. Policymakers weighing rate caps and other restrictions should remember: they can’t legislate the economy back to normal, but they can ensure families still have somewhere reliable to turn while everyone waits to find out what normal looks like next.

August 14th, 2026

From “New Normal” to “No Normal”

From “New Normal” to “No Normal”

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