A recent field note from the Federal Reserve Bank of Boston reveals that, despite a significant drop in inflation, 59% of U.S. adults surveyed in May are still highly concerned about future price increases. This concern persists even though the inflation rate decreased from a peak of 9% in June 2022 to about 3% by June 2023. As inflation rates have gradually declined over the past two years, households remain significantly concerned about rising prices, with many turning to credit cards and loans to cope.
Driving the news: The report finds that as of October 2023, nearly 40% of U.S. adults used credit cards or loans to cope with rising prices, up from approximately 37% a year earlier. Notably, consumers who experienced a recent job loss or those within the $35,000 to $75,000 income bracket were more likely to turn to credit cards as a financial coping mechanism.
- Despite a decline in inflation rates, with the Consumer Price Index (CPI) showing a 2.9% increase over the past year — the lowest since April 2021 — many Americans remain concerned about the cost of living. This concern is especially acute among households experiencing job losses, where 34% have turned to credit cards or loans to handle expenses.
The impact: The reliance on credit is not without consequence. Rising credit card debt is coupled with increasing delinquency rates, particularly among younger consumers under 40. This trend suggests that more households are struggling to manage their debt, potentially leading to a wave of defaults that could impact the broader economy.
What they’re saying: “Concern [about] future price increases has decreased over the past few years – but not by as much as we may have anticipated, given how much inflation has come down,” said Michael Evangelist, a senior policy analyst at the Boston Fed.
