LIVE MARKETS-After a brief, worry-driven retreat, inflation-wary consumers charge it

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AFTER A BRIEF, WORRY-DRIVEN RETREAT, INFLATION-WARY CONSUMERS CHARGE IT

Having tapped the brakes on their debt loads in March, Americans busted out their credit cards in April.

A report released late Friday showed the U.S. consumer credit balances USCRED=ECI unexpectedly increased in the first month of the second quarter.

Data from the Federal Reserve showed the total outstanding credit balance increased by $17.87 billion, a 107.8% acceleration over March's downwardly revised $8.6 billion, in defiance of the $15 billion increase analysts expected and $7.87 billion more than analysts predicted.

Digging beneath the headline, non-revolving credit - which includes big-ticket items like cars and tuition - increased by $10.24 billion, or 50.4% more than in March, when policy uncertainties put the brakes on major household spending plans.

Non-revolving credit, which includes credit card balances, increased by $7.63 billion, a sharp acceleration from the prior month's $1.79 billion increase.

While the upside surprise suggests consumers are feeling less squeamish about adding to their household debt, a look at total revolving debt outstanding, combined with consumer expectations and the saving rate (or, the unspent share of disposable income), paints a picture of trepidation over President Trump's erratic and unpredictable policies, and their effect on the economy.

Mounting worries following Trump's re-election drove consumers to pay down revolving credit for the first time since the COVID crisis, drove consumer expectations to nearly a three-year low, and put upward pressure on the saving rate, which is widely considered a barometer of consumer uncertainty.

A look at the University of Michigan's final consumer sentiment reading for May shows Americans are increasingly worried that Trump's market rattling tariffs will send inflation into orbit; survey participants see an annual inflation rate of 6.6% one year from now, in contrast to the most recent 2.8% year-over-year core CPI reading.

Hot inflation expectations can become a self-fulfilling prophecy if consumers move their purchases forward to avoid higher prices down the road. It's textbook "inflation psychology," which bumps up demand and puts upward pressure on price growth.

(Stephen Culp)

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