Fed report: Consumers use credit cards and loans to fight inflation

Diving certificate:

• The share of U.S. adults who used credit cards or loans to make ends meet amid rising prices rose to nearly 40% in October 2023, up from about 37% a year earlier. According to a study by the Federal Reserve Bank of Boston.
• Additionally, about a third (34%) of adults living in a household that experienced a job loss used a credit card or loan to cope with price increases. Generation Z and millennials were the age groups most likely to use loans and credit cards to respond to higher prices, although other demographic factors played a role in Gen Z being above average, the report found.
• Consumers who had some college education or earned between $35,000 and $75,000 were more likely to resort to credit cards and other loans to withstand rising prices, the Boston Fed report said.

Diving insight:

Consumer prices rose 2.9% over the past 12 months to July, the smallest annual increase since April 2021. According to the latest figures from the consumer price indexEven if inflation continues to decline, Boston Fed researchers concluded that it will take some time for the initial inflation shock to dissipate, particularly among low-income households and people who have recently lost their jobs.

The Boston Fed said that in addition to relying more heavily on credit cards, consumers are also taking other steps to cut costs. According to the report, consumers have reduced spending by eating out less, canceling subscriptions, buying fewer fresh fruits and vegetables and meats, and switching to generic foods. Survey respondents also reported saving less, working more, moving to cheaper housing, and delaying major purchases, according to the Boston Fed report.

“Worries [about] “The likelihood of future price increases has declined in recent years – but not as much as we might have expected given the decline in inflation,” said co-author Michael Evangelist, a senior policy analyst in the Federal Reserve Bank of Boston's Division of Regional and Community Outreach.

As consumers pay for their purchases with credit cards, the Federal Reserve has also monitored the rise in credit card debt. In the second quarter of 2023, credit card debt rose exceeded $1.03 trillionaccording to the Center for Microeconomic Data of the Federal Reserve Bank of New York. One year later, in the second quarter of 2024, credit card balances will reached $1.14 trillion.