Inflation Clouds Consumer Sentiment, Nudging Households Toward Credit

Consumer sentiment paused its late-summer slide in October, but the story behind the headline hasn’t changed: households remain fixated on high prices and a softening job outlook, and they don’t expect quick improvement.

Pocketbook issues like high prices and weakening job prospects remain at the forefront of consumers’ minds. At this time, consumers do not expect meaningful improvement in these factors.

The University of Michigan’s initial October reading released Friday (Oct. 10) shows sentiment largely unchanged from September after back-to-back declines in August and September. Year-ahead inflation expectations eased only a tick to 4.6% from 4.7%, while long-run expectations held at 3.7% — levels that keep price pressure front and center for households. Within the index, the expectations subindex slipped again, its fourth consecutive monthly decline of 2025, even as the present-conditions gauge edged higher.

After consecutives drops of 6% and 5% in August and September, stability could be awarded some positive connotation, although the current “score” its only 5% above the 33-month low point registered in April.

Consumers reported modest improvement in current personal finances and year-ahead business conditions, but that was offset by weaker expectations for future personal finances and a deterioration in buying conditions for durables — a classic sign that inflation and uncertainty around jobs are curbing discretionary purchases. Importantly for lenders, the survey notes that overall outlooks are “largely unchanged” from last month and remain just above April’s multi-year low, underscoring persistent caution.

When Sentiment Is Fragile, Credit Is a Buffer

Across that backdrop, PYMNTS Intelligence finds consumers are relying on credit to bridge day-to-day needs and maintain flexibility. Roughly 4 in 10 cardholders (38%) received a credit limit increase in the past year — the majority (56%) granted automatically — yet when consumers proactively requested more capacity, two-thirds (67%) were denied. Younger and financially strained segments are the most likely to ask, and the most likely to be turned down.

Why seek higher limits? The top reason is breathing room: 52% of requesters cited “more financial flexibility,” with many also aiming to improve credit scores. These behavioral signals align with a macro mood shaped by inflation and job uncertainty: consumers prize optionality, but many are wary of overextending.

Credit availability doesn’t just cover purchases; it also governs how consumers feel about their financial institutions. Among cardholders who received an increase, 64% said their impression of the issuer improved; only 2.9% felt worse. By contrast, after a denial, 35% felt more negative about the issuer.

The flip side is equally important: a sizeable share of customers actually felt better about their issuer even after a denial when the decision was communicated clearly and quickly. That finding highlights a simple operating rule for banks and credit unions in a high-inflation, low-confidence environment: transparent decisions — approvals or denials — are trust signals that can preserve or grow share of wallet.

Installments Rise When Limits Don’t

When higher limits aren’t available, consumers pivot. Forty percent of cardholders report having an active installment plan, and usage spikes to 73% among those denied a limit increase in the past year — evidence that shoppers are turning to structured payments to manage cash flow amid elevated prices and uncertain income. For issuers, that is both a risk (losing spend to alternatives) and an opportunity (meeting demand with issuer-backed plans).

PYMNTS Intelligence also shows how central credit is to household planning: 71% say credit limits play a major role in their financial plans, including 42% who call them very or extremely important. That figure jumps among younger consumers and those utilizing most of their available credit, two cohorts that are also most attuned to inflation and job risks. The strategic takeaway is clear: responsible access to credit — paired with clear, timely decisions — translates directly into trust and continued usage.

For financial institutions, the path forward in a middling-sentiment, high-inflation landscape is to make credit both prudent and predictable. Automate approvals where risk-appropriate, offer installment alternatives when limits can’t rise and explain decisions in plain language. Consumers may not feel better about prices or jobs yet — but they will remember which institutions gave them the clarity and capacity to navigate both.