Mar 10, 2022 - Economy

Americans reach for credit card to deal with inflation

Illustration of the Statue of Liberty drowning and holding up a credit card just above water

Illustration: Aïda Amer/Axios

Americans are going into debt to deal with a generational high in inflation after increasing their savings in the early going of the pandemic when stimulus funds were flowing.

  • Inflation hit another 40-year high in February, rising 7.9% over the previous 12 months, according to federal data released Thursday.

Why it matters: Low-income folks are particularly susceptible to inflation, including the rising cost of rent, gas and food — each of which is a big factor in the increased cost of living.

  • Nearly one-third of Americans have added credit card debt during the pandemic — and of those, about half say inflation was the biggest reason, according to LendingTree.
  • Inflation was a bigger reason than job loss, pay cuts, medical bills or child care.
  • Despite wage gains, more than 6 in 10 banking customers say "the price of goods that they buy are increasing faster than their income," according to the J.D. Power Banking and Payments Intelligence Report.

Threat level: Rising inflation comes with rising interest rates, as the Federal Reserve is poised to act. But that will make the cost of debt rise even further.

Meanwhile, the skyrocketing cost of gasoline in March hasn't even yet factored into the government's Consumer Price Index inflation gauge.

  • Gas prices reached another all-time high Thursday at a national average of $4.32 per gallon, up $1.50 from a year ago, according to AAA.
  • Every $1 increase in the price of gas costs about $1,200 per household annually, Morgan Stanley analyst Adam Jonas estimated.

What’s next: Economists and politicians are murmuring about taking steps to ease the impact of soaring gas prices on consumers.

  • California Gov. Gavin Newsom on Tuesday said he would be floating “a proposal to put money back in the pockets of Californians to address rising gas prices.”
  • Several economists have endorsed the idea of lawmakers sending out “gasoline vouchers,” potentially targeted at low-income citizens.

Reality check: Democrats eager to tackle climate change will have to decide whether they’re willing to hand over money for people to spend on fossil fuels. And Republicans will have to decide whether they're OK with the government borrowing more.

But, but, but: November midterms are fast approaching.

  • “This is an election year, and consumers have been stunned by gasoline prices — a perfect storm, in our opinion, for rebates or vouchers,” wrote Greg Valliere, chief U.S. policy strategist of AGF Investments.
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