Credit Cards Are Poised to Turbocharge Inflation

U.S. consumer prices are rising the most in decades, which, on its own, might suggest trouble for the world’s largest economy as it looks to recover from the Covid-19 pandemic. However, Americans are simultaneously freeing up space on their credit cards like never before, which could allow them to better withstand such increases in at least one sign that a sustained upward spiral in inflation can’t be dismissed so easily.

On the same day that the Labor Department disclosed that the U.S. consumer price index increased 0.8% in April from the prior month, and that core CPI surged 0.9% in the steepest monthly increase since 1982, the Federal Reserve Bank of New York released its Quarterly Report on Household Debt and Credit, which showed that Americans’ balance sheets remain in good shape overall. In particular, credit-card balances plunged $49 billion in the first three months of the year, the second-largest decline in more than two decades of data. All told, these balances — which often come with double-digit interest rates — are $157 billion lower than at the end of 2019 and the smallest in four years.