As Americans struggle at paying their bills and inflation reaches 40-year high, consumer borrowing in the U.S. is also on the rise.
The general Consumer Price Index for urban U.S. consumers rose 8.6 percent year-on-year in May 2022, the fastest annual rate since December 1981, driven by a 34.6 percent increase in energy prices and a 10.1 percent increase in food prices.
U.S. households are starting to run into trouble, taking on more debt, maxing out their credit cards and paying record-high interest rates to cover rising expenses as inflation bites into Americans’ financial security.
About 35 percent of households say they are having trouble paying bills, up 10 percentage points from this time a year ago, JPMorgan Chase chief U.S. economist Michael Feroli said Thursday in a note to clients.
“By most aggregate measures, consumer finances still look to be in good shape, but there are now some signs of strain and fatigue,” Feroli wrote. “We’re not in a 2007 situation, but the recent strains raise the risk that if job growth slows we can’t count on consumers lowering saving rates further to support above-trend spending growth.”
That 35 percent figure is the highest since the coronavirus delta wave in late 2020, tweeted CNBC anchor Carl Quintanilla, citing U.S. Census Bureau figures and JP Morgan.
Just 53 percent of cardholder respondents said they were confident they could pay their credit card monthly balances in full, down 10 points from May and the lowest since 2018, matching the largest monthly decline in the nearly four-year history of LendingTree’s Credit Card Confidence Index.
Since the rate of inflation has far exceeded wage growth, consumers have relied on savings and credit cards to pay for essentials as well as discretionary purchases. In the first quarter of 2022, US consumers opened 229 million new credit card accounts, exceeding pre-pandemic levels, according to the New York Federal Reserve Consumer Credit Panel.
Federal Reserve data for April 2022 showed that Consumer Credit Outstanding (most of the credit extended to people excluding loans secured by real estate) increased by a record 12.7 percent in March and 10.1 percent in April 2021 compared to the previous year.
Annual percentage rates on credit cards are expected to rise as the Federal Reserve tightens monetary policy in an effort to curb inflation. The average credit card rate was more than 16 percent in 2020, 2021 and the beginning of 2022. Experts project a rise to 18 percent by the end of 2022 as the Fed continues raising the target range for the federal funds rate.