Americans spent big last year, plunging into credit card debt faster than they have in more than two decades.
A new report on household debt and credit found that credit card balances increased by $52 billion to $860 billion in the last three months of 2021.
The tip is the largest quarterly increase in 22-year history, according to Federal Reserve Bank of New York quarterly report report on household debt and credit.
In the same period, the Total US household debt rose by $333 billion to $15.8 trillion, the Fed said.
All along all last year, debt balances, which include mortgages, credit cards, auto loans and student loans, also increased by $1 trillion, mostly due to mortgage balances.
Throughout the past year, debt balances, which include mortgages, credit cards, auto loans and student loans, have also increased by $1 trillion, primarily due to mortgage balances. .
“The total increase in nominal debt in 2021 was the largest we’ve seen since 2007,” New York Fed Senior Vice President Wilbert Van Der Klaauw said in a statement. “Aggregate balances of newly opened mortgages and autos have risen sharply in 2021, matching increases in home and car prices.”
The federal government says the latest increase in credit card spending is linked to historic inflation rates that have driven up the price of essentials like food and gasoline.
After Americans used government aid provided during the pandemic to pay off debt, they had available credit to use for new purchases, the report said.
The latest data was also a return to “typical patterns” in credit card balances, where fourth quarter balances are increasing.
Americans pay off debt in the first quarter and balances increase in the second and third quarters, New York Fed researchers said.
Overall, credit card balances are lower than before the pandemic and $71 billion lower than at the end of 2019.
The New York Fed researchers added that they would not be surprised if by the end of this year US credit card debt exceeds pre-pandemic levels.
The study was released a week after the Bureau of Labor Statistics said inflation hit a 40-year high in January, with prices rising 7.5% from a year ago.
This number was due to higher costs for food, electricity and housing. Medical costs have also increased during the pandemic.
Inflation hit a 40-year high of 7.5%, the Labor Department said Thursday, a number not seen since the Carter administration.
This figure came as a nasty surprise to the White House, which continues to assert that inflation will naturally decline over the next year. It also presents a dilemma for the Federal Reserve, which plans to raise interest rates in March.
But while Washington dithers, Americans are paying the price.
Apartment rental costs rose 0.5% in January, the fastest pace in 20 years. Electricity prices rose 4.2% last month, the biggest rise in 15 years and a 10% increase from a year ago.
Additionally, last month, furniture and home supplies rose 1.6%, the largest one-month increase since 1967.
Analysts say the average US household spends $250 more per month due to inflation.
“A lot of people are suffering because of high inflation. $250 a month – that’s a big burden,’ Ryan Sweet, senior economist at Moody’s Analytics who conducted the analysis, told The Wall Street Journal.
Wages have risen, but not enough to meet the rising costs of basic necessities. Even with wages up around 5.7%, adjusted for inflation, this translated into an average 2% pay cut for workers.
Biden’s poll numbers fell as inflation rose. His approval rating hit 40% this week for the first time in the RealClearPolitics poll average. Americans gave him low marks for his handling of the economy and expressed frustration with the current economic situation.
Grocery prices rose almost everywhere in January, with an average increase of 1% for the month.
Cereals and bakery products recorded the largest increase, up 1.8%. The price of dairy products increased by 1.1%, while fruits and vegetables increased by 0.9% and meats, poultry, fish and eggs increased by 0.3%.
The only food group that did not experience a price increase is soft drinks, which did not change.
The rising cost of food has had a ripple effect, with popular restaurant chains like Chipotile, Starbucks and McDonald’s raising prices due to a combination of inflation and high demand for supplies.
Clothing prices also increased by -1.1%.
Energy costs were also on the rise for Americans. Electricity costs rose sharply in January to 4.2%. Electricity has increased by 10.7% over the past year.
Gasoline prices fell slightly in January, but have risen 40% over the past year. Natural gas prices also fell in January, but over the past year have risen 23.9%.
Meanwhile, new car prices were unchanged last month, but rose 12.2% from a year ago.
This affected the price of used cars, which rose 1.5% in January and 41% from a year ago.
Biden issued a statement acknowledging the “high” numbers in Thursday’s report, but continued to insist that it would decline by the end of the year.
“Although today’s report is high, forecasters continue to predict a substantial decline in inflation by the end of 2022. And fortunately, we saw positive real wage growth last month and a moderation in auto prices, which have accounted for about a quarter of headline inflation over the past year. We have separately seen good news with new jobless claims continuing to decline. This is a sign of the real progress we’ve made getting Americans back to work over the past year,’ the president said.
“My administration will continue to be on deck to win this fight. We will continue to rebuild our infrastructure and manufacturing, so we can do more in America and strengthen our supply chains here at home.
We will continue to fight for costs in areas that have held families and workers back for decades, from prescription drugs to childcare and seniors to their energy costs. And we will continue to promote more competition to make our markets more competitive and give consumers more choice.