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Tuesday, December 6, 2022
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Debt Increasing as Prices, Spending Rise

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Inflation money graph | Image by DesignRage

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The Federal Reserve released the monthly Consumer Credit Report for February 2022 on April 7. The report shows that February 2022 U.S. consumer credit increased by an annualized rate of 11.3% over January 2022.

Revolving consumer credit, including credit card spending and personal loans, saw the most significant jump at 20.7%. Nonrevolving consumer credit, such as auto and student loans, rose 8.4%.

Consumer credit (also called consumer debt) is defined as personal debt incurred to purchase goods and services. The percentages above represent the percent increase in debt for each type of consumer credit.

Inflationary pressures bear some of the blame for the increase. The Consumer Price Index has risen 7.9% in the previous year, with energy prices showing the most significant growth, at 25.6%.

As consumer prices increase, spending increases; often, so does debt.

However, the inflationary rise in consumer prices alone likely does not account for the 20.7% increase in consumer debt.

People are spending more as pandemic restrictions decrease, heading out to restaurants, returning to stores, and attending concerts and movies. During the last month, travel agents have reported a significant increase in bookings.

The growth in debt may reflect a return to normalcy in people’s activities and, therefore, their spending.

Additionally, though consumer credit jumped from January to February, the total outstanding amount of credit card debt still had not returned to its pre-pandemic level.

Revolving debt was $1.9 billion in 2019. After falling drastically during the COVID pandemic, it had only reached $1.6 billion as of February 2022.

It is also important to note that not all consumers are slipping further into debt. For instance, 44% of all credit card users pay their bills off every month. Many use their cards as a convenience for everyday purchases at the grocery store and the pump.

As overall consumer debt rose, the average household savings rate declined slightly, from 6.4% in January 2022 to 6.3% in February 2022. However, Trading Economics is forecasting an increase in the personal savings rate through 2023. In addition, a strong job market is putting upward pressure on wages.

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