Inflation has reached its highest level in three years, severely impacting the cost of living across many U.S. states. This rise in prices affects housing, groceries, energy, and insurance costs, making it particularly difficult for residents in certain states to manage their expenses. CNBC’s America’s Top States for Business study incorporates the cost of living as a key metric, weighing it alongside other factors that influence state competitiveness. The analysis highlights that high living costs challenge businesses in attracting and retaining talent, as employers must offer higher wages to offset the financial burden on workers.

Illinois faces stark challenges with nearly one-third of its residents spending more than 30% of their income on housing. Illinois Governor JB Pritzker has recently allocated substantial funds toward affordable housing initiatives to provide relief. New York remains among the priciest states, with average home prices in Manhattan soaring to nearly $2.9 million and rental costs being the highest nationwide relative to median income. To address housing issues, New York City has implemented a rent freeze in some stabilized apartments, though critics warn it may exacerbate supply shortages.

Washington and Connecticut also rank among the most expensive states, where the prices of basic goods and healthcare contribute to an overall high cost of living. Seattle’s rising costs, combined with a new state tax on high earners, have driven some businesses like Starbucks to relocate parts of their operations. Connecticut struggles with high rental and healthcare costs as well, maintaining one of the highest price indexes in the country. In Oregon, a large share of residents are burdened by housing costs consuming over a third of income, leaving limited financial flexibility after paying necessities.

California tops the list as the most costly state to live in 2026, with nearly 40% of residents spending more than 30% of their income on housing. The state’s insurance crisis worsens affordability, as premiums have more than doubled since 2020 and are anticipated to rise further. The insurance challenges extend beyond wildfire-prone areas, forcing many homeowners into the state’s FAIR Plan, an insurer of last resort. Aside from housing and insurance, the cost of food and energy in California is also substantially higher than in other parts of the country, despite its role as a major agricultural producer.