Inflation, Energy, and the Consumer: Resilience Under PressureBy Stephen Migdal, Principal, WhiteHorse Capital

April 6, 2026 – Inflation has remained stubbornly above the Federal Reserve’s 2% target for much of the past five years, and higher price levels are now embedded in household budgets. While real wage growth has stalled recently¹, many U.S. consumers continue to feel fatigued by persistently high post-COVID prices and the expectation that they will remain elevated, a dynamic often described as the “vibecession”².

Despite subdued sentiment, underlying economic data points to a more resilient consumer backdrop. Our experience at WhiteHorse managing a diversified portfolio of consumer investments in the lower to mid-middle market is consistent with this view.

U.S. retail and food service spending in January 2026 declined a modest 0.2% month-over-month but increased 3.2% year-over-year³, while fourth quarter 2025 real GDP grew 0.7% on an annualized basis⁴. At the same time, signs of consumer strain are emerging: household debt reached $18.8 trillion at year-end 2025, an all-time high in absolute terms, and delinquencies across consumer credit categories, including auto loans, student loans, and credit cards, are rising⁵. The labor market remains stable by historical standards at 4.4% unemployment but has begun to soften⁶, with additional headwinds anticipated as companies adopt AI-driven efficiencies.

Recent geopolitical developments in the Middle East have introduced an added layer of uncertainty for consumers. Energy markets remain highly sensitive to supply disruption, and the risk of escalation has driven volatility in oil prices. For consumers, higher and more volatile energy costs act as a tax, reinforcing inflationary pressures across transportation, food, and other essential goods. While some consumers may absorb higher costs, others are likely to adjust their purchasing patterns in response.

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A More Nuanced Consumer Backdrop

Consumer strength remains uneven across income cohorts. Higher income households have largely continued to drive spending growth, while middle and lower income consumers face flatter consumption trends⁷. Sustained rising energy costs are likely to exacerbate this divergence.

Overall, consumers are showing signs of pressure, including rising credit card balances and reduced savings buffers, but not the broad-based stress typically associated with an imminent downturn. The margin for error, however, is narrowing. We believe that sustained meaningful increases in costs, whether driven by energy shocks, future tariffs, or other factors, within an already constrained consumer environment, will put pressure on demand.

That said, WhiteHorse recognizes these dynamics and takes a thoughtful, relationship-minded approach to structuring investments, enabling us to deliver flexible solutions to both sponsor and non-sponsor consumer-focused partners.

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Implications for WhiteHorse Underwriting

The current environment reinforces a core principle of investing at WhiteHorse: outcomes are often driven by disciplined underwriting and strong downside protection. That said, macro factors, including geopolitical shocks, directly inform how we assess risk.

Persistent inflation, particularly if reinforced by energy market volatility, has clear implications for credit. Higher-for-longer interest rates increase debt service burdens, while input cost volatility can pressure margins for businesses without pricing power. In this environment, selectivity becomes paramount.

At WhiteHorse, our consumer-related investments focus on businesses that provide essential products and services, including HVAC repair and maintenance and food distribution to grocery and foodservice channels, and branded goods with recurring demand characteristics. In our experience, these segments tend to demonstrate greater resilience across economic cycles. We generally avoid sectors such as restaurants and discretionary brick-and-mortar retail, where traffic volatility and shifting consumer preferences can amplify downside risk.

Our underwriting approach emphasizes:

• Stress-testing cash flows under higher input cost and interest rate scenarios
• Prioritizing businesses with pricing power and contractual or structural inflation pass-through mechanisms
• Maintaining appropriate leverage levels and strong free cash flow profiles
• Partnering with experienced management teams with a track record through prior cycles
• Structuring investments with meaningful equity cushions and lender protections

With a team of 22 experienced origination professionals across 12 offices in the U.S., we maintain deep relationships and broad sourcing coverage, allowing us to remain selective while consistently identifying opportunities that meet our underwriting standards.

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Focused on Credit Fundamentals

We remain active but disciplined in the current environment.

While recent headlines focus on conflict and volatility, our investment approach centers on flexible, creative lending solutions supported by fundamentally driven underwriting, with an emphasis on durable business models, resilient demand profiles, and sustainable free cash flow generation within prudent capital structures.

Investments grounded in fundamentals, not “vibes”, are where we believe long-term value is created.