US poised to use credit cards more as rising inflation bites

A growing number of people in the United States are expected to rely on their credit cards much more in the coming months to offset the rising cost of goods and services at a time of high inflation, the Consumer Financial Protection Bureau said.

"In the coming months, even more people may turn to their credit cards, as increasing prices for necessities like groceries and gas upend their budgets," Margaret Seikel, a financial analyst at the CFPB, a federal agency, wrote in a recent blog.

"But this borrowing comes at a cost. With today's interest rates, a person with a $5,000 credit card balance could pay an additional $1,000 in interest over the course of a year."

More than 175 million Americans have at least one credit card, and half carry a balance on the card, according to the CFPB.

The Federal Reserve has raised interest rates several times this year in an effort to keep inflation－which hit 9.1 percent in June before retreating to 8.5 percent in July－under control. The central bank is expected to raise rates again in the months ahead.

Federal Reserve Chairman Jerome Powell said in late August: "We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored. We will keep at it until we are confident the job is done."

In June, gasoline prices hit a national average of $5 per gallon for the first time ever. The price of meat and fish rose 14.2 percent, and eggs were up 32.2 percent from May 2021 to May 2022, the consumer price index showed.

The high cost of living is already affecting many families that had to borrow money to cope.

In the second quarter of 2022, a record number of people in the US had credit cards and personal loans, according to a TransUnion credit industry insights report released on Aug 4.

Credit card balances rose by 13 percent in the second quarter. It was the largest year-on-year increase in more than 20 years.

Altogether, people in the US had $500 million in credit card debt for the first time ever.

Additionally, at least 233 million new credit accounts were opened in the second quarter, the highest number since 2008, a report from the Federal Reserve Bank of New York showed.

Michele Raneri, TransUnion's vice-president of US research and consulting, is confident that borrowing is not out of control. She said in a statement that "the strongest indicator of whether somebody can pay their bills or not is whether they have a job".

The ADP National Employment report, released on Aug 31, showed that private employment rose by 132,000 jobs in August after increasing 268,000 in July.

Nela Richardson, chief economist at ADP, said in a statement: "Our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy's conflicting signals. We could be at an inflection point, from super-charged job gains to something more normal."

There were 11.2 million job openings on the last business day of July, with two openings for every unemployed person, said data from the government. There have been no widespread layoffs, with weekly jobless claims still at considerably low levels.

In 2020 and 2021, credit card debt decreased as Americans received financial relief payments, yet interest rates continued to increase.

Last year, the CFPB found that the spread between the prime rate and the average annual percentage rate on credit cards was at a record high. In contrast, delinquencies and defaults on credit cards are at a record low as consumers keep up with their payments.