High rates, interest-bearing installments and lower purchasing power explain another decline in the use of credit cards

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Inflation erodes the purchasing power of wages and credit cards are registering once again new drop. Plastics are the main source of household debt and a good thermometer of activity: last month their use grew below inflation, at the beginning of the year where, despite official efforts, consumption does not seem to pick up.

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Credit card financing it had already collapsed in February and failed to recover last month. According to a study by First Capital Market, in the third month of the year consumption with credit cards increased by almost 5% compared to the balance recorded in February; while inflation forecast for that month is around 7% in the City’s main consultancies.

The phenomenon had already been in the government’s sights since before the end of last year. Is that theleveraging consumption is usually vital in an election year. But the rise in inflation in the first three months of 2023, the delay in updating the parity and the increases in interest rates by the Central Bank mean that fewer and fewer Argentines can or want to choose the cards to finance their expenses.

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There are several factors that explain this trend, but essentially everything refers to inflation and the loss of household purchasing power. “Despite the rising prices of assets purchased by credit card, we observe that funded balances are not growing at the same rate,” said Guillermo Barbero, partner at First Capital Markets.

For the analyst, the increase in the cost of financing in recent months is fundamental. He said there is “a lower offer of installments by financial institutions due to the increase in the cost of funds for them, a self-restraint by consumers to buy in installments due to higher financing costs”.

He also underlined that the number of people who have plastic to finance themselves in the bank has begun to decrease “due to the increase in credit risk” and recalled that institutions they stopped increasing their credit limits in line with rising inflation as a way to keep the level of non-performing loans at bay.

To this compendium of reasons, we will also need to add changes to the way users pay. According to the Central Bank’s latest Report on Retail Payments, while payments for wire transfers are growing, those made with plastic are doing so at a slower pace and the use of debit cards has surpassed that of credit cards.

The decline in the use of credit cards is part of a picture of collapse in consumption. After credit to the private sector ended 2022 with an overall decline of 20% from the levels it recorded a year ago, there has been no recovery so far this year.

Also based on data from First, personal loans grew 6.6% last month, closer to inflation expectations but still below the level of price growth.

At the consultancy firm Claves Información Competitiva, they analyzed the evolution of credit over the past four years and found that consumer loans, i.e. personal credit lines and cards, they decreased by 40.8% in real terms.

Source: Clarin

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