The latest inflation report may have put coal in the stockings of holiday season shoppers.
Actually, some more credit-card debt to be precise.
The yearly rate of inflation was 8.2% in September, just above the 8.1% forecast and down slightly from 8.3% in August, Thursday’s data showed. “Core” inflation — stripping away food and energy costs — jumped 0.6% from August to September; again, expectations were for a slightly lower increase.
If the Fed does choose to increase the key rate at its early November meeting, the closely-connected annual percentage rates (APRs) on credit cards are also likely to rise in tandem — just as the holiday shopping season goes into full swing.
“It’s making any already expensive problem more expensive,” said Ted Rossman, senior industry analyst at Bankrate.com. Higher APRs make it more costly to carry a balance month to month.
“If the Fed does choose to increase the key rate at its November meeting, the closely-connected annual percentage rates (APRs) on credit cards are also likely to rise in tandem.”
When the Fed makes a rate hike, it might take days before new credit-card offers reflect those rates, he said. It can take one or two months for credit-card issuers to apply those higher rates to existing accounts.
As of Wednesday, the average rate on new credit card offers was 18.67%, Rossman said. That number is approaching the record average of 19%, set in July 1991, he noted. “We’ll likely go past that in the next few weeks,” Rossman said.
This time last year, the average APR on new offers was 16.16%, Bankrate’s data showed.
During the second quarter, Americans had a cumulative $890 billion balance on their credit cards, according to the Federal Reserve Bank of New York. The annualized increase in debt was its sharpest in more than 20 years and a potential sign of inflation’s toll, researchers said.
“It’s definitely a double whammy for people. Higher balances, higher rates. There’s a cumulative effect to all that,” Rossman said.
Credit-card balances
Credit-card balances typically dial up to the fourth quarter, then get paid down in the first quarter and slowly dial up again, Rossman said. Last year, the first quarter cumulative balance was $770 billion and rose to $860 billion by the fourth quarter, New York Fed data shows.
There are some early clues shoppers could be toning down spending and turning up the bargain hunt. Online holiday sales are projected to rise 2.5% to $209.7 billion this year, said Adobe
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That’s the slowest growth rate since 2012 and pales compared to the 8.6% increase in online holiday sales last year.
One feature is early deals and discounts in October to entice customers, said Patrick Brown, vice president of growth marketing and insights at Adobe.
Retail sales last November and December hit a record $886.7 billion, according to the National Retail Federation. The trade association hasn’t released its 2022 holiday-shopping projections yet, but there’s early indication that people are keen on deals.
“‘You worry about your Christmas debt in January. That’s my busy time of the year.’”
Nearly six in ten shoppers said sales and promotions are more important to them now than they were a year ago. When pollsters asked the same question last year, nearly half felt the same way.
Whatever happens next with credit-card rates, there’s a chance many people will not be facing up to a steep holiday season credit-card bill until after the festivities, said Michael Sullivan, personal-financial consultant at Take Charge America, a non-profit consumer credit-counseling and debt-management organization.
“You worry about your Christmas debt in January. That’s my busy time of the year,” said Sullivan, who has some individual clients, but mostly focuses on financial education and outreach.
The slow rise in credit-card debt does not appear to be worrying most people right now. Inflation still trumps that, he said.
“Most of them feel overwhelmed by costs,” he said.
Add that to persistent anxiety over a potential recession. That’s a worry shared by the likes of Jamie Dimon, CEO of JP Morgan Chase & Co.,
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who said he thinks a recession could arrive in America in the next six to nine months.
The specter of “a full-blown crisis” where people lose their jobs in an economic downturn, and can no longer afford to pay for necessities remains, he said.
If you make a list of all the credit crises,” he told CNBC.
“You cannot predict where they came from, although I think you can predict that this time it will happen,” Dimon added.
