fbpx
PaymentsJournal
SUBSCRIBE
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • COVID-19
  • News
  • Resources
No Result
View All Result
PaymentsJournal
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • COVID-19
  • News
  • Resources
No Result
View All Result
PaymentsJournal
No Result
View All Result

Inflation Grows, and So Do Credit Card Balances

Brian Riley by Brian Riley
August 2, 2022
in Analysts Coverage, Credit
0
Credit card balances

Customer using credit card for payment to owner at cafe restaurant, cashless technology and credit card payment concept

0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

It is not rocket science to expect revolving debt to grow as inflation takes hold of the consumer budget. The latest Consumer Price Index (CPI) indicates that the cost of food is up by 10.4%, energy costs rose a whopping 41.6%, and all items tracked by the Bureau of Labor Statistics for all items rose 9.1% as of June 2022. How will this affect credit card balances?

If you are Joe or Jane Average, your annual mean wage across all occupations is $22.00 an hour, or $58,200. Remember, that rate includes a wide range of people, ranging from “doctors, lawyers, and Indian chiefs” to “butchers, bakers, and candlestick makers.” 

What is a household to do with a gallon of milk now averaging $4.27 in Boston as of July versus $3.54 in January 2022? Consider yourself lucky not to be in Washington, DC, where the average gallon of milk is now $5.04. And, why, of all places, does a gallon of milk in Kansas City, Missouri, cost $6.01, where the state recognizes that it has 71,000 dairy cows? That is another story for another day.

The response surely should not be to blame your credit card company. It would help if you also did not blame the Federal Reserve, which has the challenging role of managing interest rates to curtail inflation. If you are Joe or Jane Average, you should thank your bank for the credit card cushion and Jerry Powell for trying. Yes, interest rates are on the uptick, but in almost all cases, the credit card APR ties to the prime rate.  It was nice when the prime rate was 3.25%, but it hurts when the prime rate rises. Today, the prime is at 5.5%. Perhaps consumers should expect it to hit 6.5% before year-end.

In today’s news cycle, you will find a raft of articles, ranging from CNBC, which claims that “20% of Americans are afraid to check their credit card statements as interest rates approach an all-time high.”  At Reuters, you will see that “inflation begins to strain finances of young, low-income Americans,” Fortune talks about “Americans are putting inflation on their credit card.”  The Washington Post proclaims, “Credit card debt surges as inflation drives up costs.”

Ok, we have it.

Inflation will disrupt the household budget. Do not blame your banker when your credit card balance climbs. Be happy they are in place to bear the risk as recession comes and today’s 3.8% unemployment rate rises as we approach 2023.  The banker will be contending with increasing credit losses. Yes, indeed, consumers will pay more as the Fed raises rates. They still need to fill their tanks and pantries, so as those prices climb, so will revolving debt. And for the banker, expect risk ahead as the economy continues to navigate rough waters.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

Tags: Credit CardCredit Card Interest Ratesinflation
0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

    Analyst Coverage, Payments Data, and News Delivered Daily
    Sign up for the PaymentsJournal Newsletter to get exclusive insight and data from Mercator Advisory Group analysts and industry professionals.

    Must Reads

    Fed Survey Finds Access to Faster Payments Important to Most Businesses

    How to Ensure Accurate, Efficient Payments Amidst Economic Uncertainty

    August 12, 2022
    eCommerce Payments Fraud money mules

    Money Mules, You Are Already Have Them – Now What?

    August 11, 2022
    Why Banks and Credit Unions Need to Adopt Real-Time Payments Now

    Why Banks and Credit Unions Need to Adopt Real-Time Payments Now

    August 10, 2022
    Making Sense of Online Identity

    Making Sense of Online Identity

    August 9, 2022
    Account Takeover Fraud Is Getting More Sophisticated. How Can We Beat It?

    How to Protect Consumers from Account Takeover Fraud

    August 8, 2022
    Technical Challenge or Business Enabler? Seizing the Opportunity of PCI DSS Compliance

    PCI DSS v4.0 Compliance: Raising Your Script Security Awareness

    August 5, 2022
    Reexamining Buy Now Pay Later as PayPal Makes a Bigger Move

    Reexamining Buy Now, Pay Later as PayPal Makes a Bigger Move

    August 4, 2022
    Putting AI and Machine Learning to Work Against Fraud for Banks, PSPs, and Merchants

    Putting AI and Machine Learning to Work Against Fraud for Banks, PSPs, and Merchants   

    August 3, 2022

    • Advertise With Us
    • About Us
    • Terms of Use
    • Privacy Policy
    • Subscribe
    ADVERTISEMENT
    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Videos
    • Industry Opinions
    • COVID-19
    • News
    • Resources

    © 2022 PaymentsJournal.com

    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Industry Opinions
    • Faster Payments
    • News
    • Jobs
    • Events
    No Result
    View All Result

      Download the complimentary eBook - The power of today’s market‑ready AI to reduce transaction fraud