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For years, consumers have tried to keep up with the rising cost of living, but some may be reaching their limit.
On Friday, the personal consumption expenditures price index showed that consumer spending stayed strong even as inflation remains stubbornly elevated and the cost of food and other goods continues to rise.
However, Americans are now increasingly leaning on credit cards to buy essentials like gas and groceries, according to TD Bank, which provided CNBC with an exclusive early look at its new credit card pulse check survey.
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Grocery prices rose by 2.7% in August from a year earlier, the fastest annual pace since August 2023, according to the latest consumer price index.
Currently, groceries make up the bulk of credit card purchases for many Americans, with 46% citing it as their top spending category in a typical month, the TD Bank survey found.
Whether it’s a dozen eggs or a pound of coffee, Americans are having a hard time adjusting to current prices, other research also shows. In a recent report by Wells Fargo, about 90% of consumers said they experienced some form of “sticker shock,” particularly when it comes to buying food or a tank of gas.
“The things that people tend to notice more frequently become more prominent in people’s minds,” said Chris Fred, head of credit cards and unsecured lending at TD Bank.
Although gas prices are down year over year, 13% of the more than 1,000 adults polled by TD Bank said that gasoline was their top credit-card spending category.
“There is a common misperception of credit card spending as frivolous, but that just isn’t the reality for most Americans,” Fred said.
In fact, such non-discretionary spending caused the most strain on household budgets, TD Bank also found: Nearly half, or 49%, of consumers said their spending on groceries increased the most over the last year, while 10% cited gasoline.
Credit card balances near an all-time high
Meanwhile, credit card balances have continued to rise, according to research on household debt by the Federal Reserve Bank of New York.
Balances reached a collective $1.21 trillion in the second quarter — up 2.3% from the previous quarter and in line with last year’s all-time high.
Data from Equifax also found that many consumers continue to spend, despite elevated prices and high borrowing costs.
“The presumption is, don’t borrow,” said Sheila Bair, former chair of the U.S. Federal Deposit Insurance Corporation. “The exception is a credit card that you pay off at the end of every month.”
Bair is also a member of CNBC’s Global Financial Wellness Advisory Board.
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