Inflation in the U.S. hit a four-decade high in May, rising at an 8.6% annual rate.
So far, Americans have been able to cope with the sky-high consumer prices, but on Monday, Bank of America revealed that some consumers are tightening their belts.
Even though credit and debit card spending at the bank rose 11% from a year ago last month, Senior Economist Aditya Bhave said this week that there is a “real risk” that consumer spending declined for the second consecutive month in June, after adjusting for inflation.
In a research note titled “The ‘inflation tax’ gets real,” Bhave noted that he is seeing a “broad-based slowdown” in consumer spending.
That’s a critical insight, given the fact that consumer spending makes up roughly two-thirds of U.S. gross domestic product (GDP)—and two-quarters of negative GDP means the economy is in a recession.
Gas prices lead to spending changes
Consumers were feeling the heat in June as gas prices hit a record high of over $5, according to data from AAA. Gas spending rose 4% last month alone, and is now up 20% over the last five months, Bhave said.
“Gas prices are starting to hurt,” he wrote. “This has started to take a toll on other categories of consumer spending, including services.”
In last month’s spending report, Bank of America’s economists said that consumers were shifting their spending from goods to services as pandemic restrictions faded. Bhave had expected to see that trend continue this month, but instead, what he saw was “more concerning.”
Travel and restaurant spending fell for the first time since January last month, Bank of America data shows, and durable goods spending sank for the fourth consecutive month. In the first week of July, airline, lodging, and restaurant spending by lower-income households were all “basically flat” compared to a year ago as well.
That’s a worrying sign that U.S. consumers won’t be able to keep pace with inflation moving forward. Or as Bhave puts it, pain at the gas pump is now spreading “beyond the pump.”
Some good news about credit card spending
Bank of America’s consumer spending report did show some positive signs, however— particularly for lower-income consumers.
Rising gas and food prices have many economists worried that Americans making under $50,000 per year could be forced to rely on credit cards for expenses, Bhave said.
After all, in June, lower-income households saw their spending on gas alone reach 9.8% of their overall card spending, according to Bank of America Institute data. That’s up from just 7.7% in February.
So far though, Bank of America’s clients haven’t been forced to use more credit to cover their expenses.
“The good news is that inflation does not appear to have caused a shift toward credit card usage by lower-income consumers,” Bhave wrote.
Credit card spending did “modestly outpace” debit card spending for lower-income consumers over the past year, but debit card usage has increased more than credit card usage compared to pre-pandemic levels.
“The share of credit cards in total card spending is only up slightly since the end of 2021 for all income cohorts, and is below the pre-pandemic share for all but the top income cohort,” Bhave noted.
On top of that, gas prices have pulled back to a national average of $4.67 per gallon this week, offering some relief for consumers who have been forced to cope with record prices.
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.
