How Inflation, Gas Prices Will Affect Holiday Sales

Washington, D.C.—The National Retail Federation is forecasting a happy holiday season, with consumers expected to remain resilient amid high gas prices and rising household expenses.

Its annual holiday forecast, released Thursday, expects holiday retail sales to grow 4.2 percent year-over-year to $1.013 trillion.

Last year, holiday sales were up 3.1 percent to $972 billion.

The NRF defines the holiday season as Nov. 1 through Dec. 31, and its sales calculations include only core retail, excluding money spent on gas, automobiles, and at restaurants. It does not adjust for inflation.

When crafting its forecast, the NRF looks at a variety of economic factors, including disposable income, labor market conditions, the unemployment rate, wages, household wealth, the state of inflation, and the pattern of overall retail sales throughout the year.

The trade organization hosted a media call Thursday morning to discuss its forecast in detail, including the state of the K-shaped economy, the issue of dynamic pricing, seasonal hiring, and what shoppers are looking for this season.

Consumers are the “unsung heroes” this season.

“We continue to be very impressed with the resilience that consumers have demonstrated as they’ve continued to spend and power our economy and we expect that strength to carry into our November to December holiday period,” NRF President and CEO Matthew Shay said.

Shay heralded consumers as the “unsung heroes” of the economy, as they continue to spend and drive economic activity.

He acknowledged the headwinds consumers are facing, including inflation and “uneven confidence” in the economy.

Still, year after year, shoppers have shown that spending on their loved ones throughout the holiday season remains a priority.

Retail spending has been strong all year, in fact, said NRF Chief Economist Mark Mathews.

However, holiday spending is expected to “vary significantly” based on household income levels and wealth, as well as exposure to everyday expenses like gas and other household essentials.

The factors that played into the forecast are inflation, income, the labor market, household wealth, and consumer confidence, Mathews said.

Inflation is The Grinch of the season, with gas prices playing Scrooge.

“There’s no doubt that [inflation] is contributing to our nominal sales growth,” Mathews said.

Core goods inflation, as measured by the Personal Consumption Expenditures price index, is expected to average 2.5 percent in 2026, up from 1.6 percent in 2025.

With holiday sales expected to grow 4.2 percent, that means only about half of the increase will stem from real consumer spending growth, he said.

Higher diesel prices also are increasing shipping costs and the rising price of memory used in electronics and other goods is putting pressure on certain categories, he said.

Higher freight costs also are expected to be a factor this season.

Retail is a highly competitive industry, noted Mathews, and consumers are increasingly focused on affordability.

“As we saw with tariffs, this is an industry that survives on providing lower prices to consumers and potentially eating some of those costs and we would expect to see some more of that in relation to freight costs,” he said.

Gas prices remain a major concern. While income tax refunds may have offset high gas prices for the first eight months of the year, that money is now gone, Mathews added.

“As we head into the holiday period, if gas prices remain higher, we do expect that this will have a larger impact on households at the lower end of the income spectrum,” he said.

Still, the price of goods is expected to be lower than headline inflation as retailers cater to price-conscious shoppers.

“We expect consumers to remain deliberate and value-conscious in their choices even as they prioritize gifts and celebration,” he said.

As for where people will be shopping—in-store versus online—Mathews said: “Stores remain incredibly relevant but to distinguish between digital transactions and in-store transactions is just harder to do and something we don’t think necessarily makes a lot of sense moving into the future.”

Shay briefly discussed the hot topic of surveillance pricing, which refers to the practice of collecting personal data to charge individual consumers different prices for the same product.

There is also the issue of dynamic pricing, like charging more for a sandwich at peak lunchtime hours while offering a lower price at night.

Walmart, for example, has been accused of these practices, which it denied in a statement earlier this month, saying it “prices products, not people.”

“We do not engage in dynamic pricing, raising prices in response to a hot afternoon or an approaching snowstorm, for example,” the retailer said.

Shay noted that consumers are apprehensive and there are “legislators, policy makers, and outside observers who, I think, very opportunistically are trying to feed on that apprehension by making suggestions about the way in which retailers work.”

Retailers, particularly at a time like this, are trying to deliver value and drive volume, he said.

“You don’t want to take advantage of your customers. That’s definitely not a winning formula.”

The labor market is in a “low hire, low fire” state.

While the labor market is resilient, retailers and other employers are “navigating a low hire, low fire environment,” Mathews said.

NRF is forecasting that retailers will hire between 325,000 and 375,000 seasonal workers, in line with last year’s estimated 356,000 seasonal hires.

Retailers will take a measured approach to seasonal hiring in light of higher gas prices, inflation, higher interest rates, and elevated consumer debt, he said.

“We expect them to add workers where demand requires it, while avoiding much larger temporary hiring increases we’ve seen in the more distant past.”

The wealth effect could bolster retail despite the K-shaped economy.

The K-shaped economy experts have been talking about all year will continue into the holiday season.

“The divide in consumer spending is becoming more pronounced,” Mathews said.

The K-shape does look a bit different from last year, when most lower-income households were in the negative, said Mathews. This year, most groups are in the positive, which could account for the strength in retail spending.

Still, higher-income households are driving spending. In some categories, the top 10 percent account for as much as 70 percent of total sales.

Rising gas prices are weighing more heavily on moderate income households, while growing financial wealth is supporting spending for higher-income households.

The wealth effect is an economic theory that says people spend more when the market value of their assets, like stocks, rise.

While the wealth effect is the strongest in areas outside of retail, like travel and hospitality, retail categories likely will feel the benefits as well, Mathews said.

Consumer confidence may not be the best indicator of holiday spending.

Consumer confidence has been struggling this year, falling to a 12-year low in September, but that may not spell doom and gloom for the holidays.

“Our research finds that confidence is a pretty poor predictor of actual spending,” Mathews said.

“Real disposable income, labor market health, and household wealth are much more important drivers of our forecast.”

Looking at all those above factors combined, they point to continued holiday sales growth, he said.

The NRF will host a Winter Consumer Outlook call later this month with more insights on the upcoming holiday season.