We talk about inflation several times a week (and it features in many of the headlines in yesterday's daily report), but the effect that shortages, perceived or otherwise, are having on the US consumer, is significant, as buying remains high, fueled in part by rising consumer credit. COVID reduced consumer credit levels from a record high, just before COVID began, but it is climbing back again, and offers of low credit and new credit cards with new features appear every day. Inflation could have two effects – it could increase the cost of credit-based purchases, so increasing credit card debt, and it could eventually lead to a tightening of credit and higher rates, which might increase the credit default rate and exaggerate the negative economic impact of higher interest rates in general. In our attempts to combat the effects of COVID, overcome a constrained supply chain, and keep economies moving, we may be setting up a credit bubble (not this year and probably not in 2022) that comes back to bite us later.
