United States | Inflation increases borrowing and delinquency

US households borrowed more in the second quarter, largely due to inflation, but arrears, which have been very low since the pandemic began, are picking up again, according to a survey released on Tuesday.

Posted at 4:58pm

“Americans are borrowing more, but a large part of the increase in borrowing is due to rising prices,” the New York Fed researchers responsible for the study write in a blog.

Total household debt increased by $312 billion (+2%) from April to June to $16,150 billion compared to the end of the first quarter. That’s $2 trillion more than at the end of 2019, before the Covid-19 pandemic.

“But the historically low rates of late repayments are coming to an end,” the economists warn in the blog.

Generous financial aid from the federal government had allowed American households to save heavily during the pandemic. These “have mostly expired, with some borrowers beginning to show difficulty in repaying their debts.”

The delays mainly occur in credit card and car loan repayments, especially for low-income households.

Inflation hit 9.1% on a yearly basis in the United States in June, a record in more than 40 years.

To curb this, the Fed is tightening monetary policy, which drives up interest rates on household and corporate loans to encourage them to consume and invest less, ultimately easing pressure on prices.

But with this voluntary slowdown in economic activity, recession fears have grown.

In detail, the total amount of outstanding home loans in the second quarter is now $11.39 trillion, up $207 billion from three months ago and $945 billion from a year ago.

Auto loans are also up (+$33 billion from $1.5 trillion at the end of March).

“Same trend for consumer credit, widespread via credit cards (+46 billion to 890 billion dollars), whose increase is 13% since the second quarter of 2021, the largest in more than 20 years,” explains the New York Fed.

Student loans, on the other hand, were roughly flat at $1.59 trillion.

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