Recent data shows that efforts to tame inflation are starting to have an effect. After nearly a year of steady rate hikes by the Federal Reserve, year-over-year growth in the Consumer Price Index slowed to 6.0% in February 2023. This was the lowest since September 2021.
While inflation eventually peaked, many Americans continued to struggle with high prices. Nominal wages have increased since the start of the COVID-19 pandemic amid the Great Resignations and ongoing tightening of the labor market, but this rate of growth has kept pace with the rate of increase in prices for most workers. This cuts into household budgets and makes it more difficult for consumers to maintain their standard of living.
One of the factors that made the recent pace of inflation so challenging was the fact that the expenditure category with the largest price increase was necessities. Inflation occurs throughout the economy, but over the past three years, the biggest spikes have occurred in the transportation (+23.8%), food and beverage (+21.5%), and housing (+16.4%) categories. These categories are difficult for households to reduce, and the inflation rate for each has outpaced the 16% average price increase across all items.
Facing this situation, US households felt inflationary pressures. More than 90% of adults in every age group say they feel pressured by the recent price increases. The most stressed age group are people aged 18 to 24, who are early in their careers and may not have savings, investments, or credit to rely on. Inflation-related stress is also a widespread concern across income levels. In every income group under $75,000, more than 95% of people report feeling pressured by inflation. Even among the highest earners earning over $200,000, over 80% are feeling pressured by the recent price increases.
Consumers adopt various strategies to deal with the impact of inflation. Most commonly, shoppers want to cut costs: more than two-thirds of adults say they look for lower prices or discounts when making purchases, more than half cut back on eating out and postpone large purchases, and nearly half switch from brand names to generic products. .
Inflation has also prompted 21% of adults to use credit cards, loans or pawnshops to help pay their rising costs. Relying on credit can be a quick way to help make ends meet in the short term, but doing so can be a financially risky move. People who have balances on their credit cards or are paying off loans slowly will end up paying more in interest—a risk compounded by the fact that interest rates have increased dramatically.
However, US households are not switching to credit cards in equal measure, because there are geographic differences in which adults start using cards more frequently. States in the Midwest, such as Wisconsin and South Dakota, and in the South, such as Georgia and Mississippi, have fewer adults reporting increased reliance on credit cards to beat inflation. In contrast, Western states such as Utah, Arizona, Nevada and California all see almost one in four adults using their cards more often. But one New England state—Maine—sat the top of the list, with 24.6% of adults reporting increased reliance on credit cards because of rising prices.
To find states where inflation is driving increased reliance on credit cards, researchers at Upgraded Points analyzed data collected in early January 2023 from the US Census Bureau. Household Census Pulse Survey. The researchers ranked states by the share of adults in each state that increased their use of credit cards, loans, or pawn shops to cope with rising prices.
The analysis found that 37.8% of adults in California rely on credit cards to meet their spending needs, and 24.0% have increased their use of credit cards due to recent price hikes. Of all the states, California experienced the 5th highest credit card dependency rate due to inflation. Here’s a data summary for California:
- Share of adults increasing credit card usage due to price: 24.0%
- Share of adults who rely on credit cards to meet spending needs: 37.8%
- Share of adults who are stressed about recent price hikes: 94.4%
- Share of adults worried about future price increases: 95.4%
For reference, here are statistics for the entire United States:
- Share of adults increasing credit card usage due to price: 20.9%
- Share of adults who rely on credit cards to meet spending needs: 37.3%
- Share of adults who are stressed about recent price hikes: 94.4%
- Share of adults worried about future price increases: 95.8%
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