Inflation Continues to Drive Up Prices. A Cash Back Credit Card Can Help Offset the Cost

From gas prices to grocery store staples, inflation continues to take a toll on Americans’ wallets.

And the categories that are contributing most to skyrocketing prices, according to the Bureau of Labor Statistics, are essential expenses in many Americans’ monthly budget: gasoline, shelter, and food. 

When every dollar counts, having the right financial tools can help you make the most of your spending. Experts recommend taking practical measures, such as reining in spending where possible and developing a budget for monthly expenses, to help combat inflation. 

But another way to save even a few cents on the dollar is with the right cash back credit card. These cards offer anywhere from 1% to 5% back on common everyday expenses, and can offer savings on the items you buy most.

Here’s more about how you can save using cash back, and how to pick the right card for you.

How Can a Credit Card Help with Inflation?

The latest Consumer Price Index, which measures changes in the prices of goods and services, showed an increase of 8.3% over the past 12 months — the largest annual increase since December 1981. The report also shows that the CPI rose 0.3% for all items in April. And food and energy rose 0.6%, which is up 6.2% over the past year.  

And the situation isn’t likely to reverse anytime soon, experts say.

“[In] the next 12 to 18 months, I expect inflation to continue on its upward trajectory,” says Kenneth Chavis IV, certified financial planner and senior wealth manager at LourdMurray, a California-based wealth management group. “I would assume that we will normalize at some point, but I don’t think that it’s anytime soon.”

While credit card rewards can’t solve the inflation problem for American consumers, they can soften the financial blow. 

For example, say your average grocery check increased by 8% since last year — which is in line with the Consumer Price Index report. If you made those supermarket purchases with the Blue Cash Preferred® Card form American Express, which earn 6% back at U.S. supermarkets (up to $6,000 in purchases each year, then 1%), your credit card would absorb much of the price increase through rewards.

But in general, this strategy is most effective for small, everyday purchases that are within your budget and you can afford to pay off when your balance is due. Failure to pay off credit card debt in full and on time each month can spiral into high-interest debt that sets you back or leaves you in worse financial shape than you might have been in the first place. Plus, it may not be as effective for purchases in more costly spending categories hit hard by inflation. 

For instance, it’s possible to buy a car with a credit card, and earn rewards on the purchase as long as it’s within your credit limit and you can pay off the balance right away to avoid interest. But used vehicles saw a 35.3% annual cost increase in March. Even the best rewards cards can do little to offset such a steep price hike. 

Best Credit Cards for Everyday Spending

If you’re looking for a credit card that will help you offset rising prices, evaluate your spending to see where you already spend most — and where inflation has hit your budget the hardest.

Here are a few of our favorite cash back cards to consider:

Inflation and Credit Card Debt

Prices of goods and services aren’t all that’s increasing in today’s economic environment — if you’re planning to use a credit card to offset prices, you should also be aware of rising interest rates.

One of the ways the Federal Reserve is acting to combat inflation is by increasing its target federal funds rate. This, in turn, can lead to higher credit card interest rates.

“[The Fed has] already done that to a small degree, and they anticipate increasing rates by 1% to 1.5%… over the next 12 to 15 months,” Chavis says. “And this will lead to interest rates across the board increasing.”

The key to using a cash back card to your advantage is to follow your normal spending patterns, and earn cash back on purchases you’d make anyway and which are already within your budget.

And if you already carry credit card debt, higher interest rates mean your debt will soon become more expensive. You’ll likely save more by paying off any existing debts before you seek to maximize rewards. 

More Ways to Save as Prices Rise

Using a cash back card isn’t the only solution you can use to circumvent rising costs and protect your wallet against inflation.

Start by tracking your budget. This will help you determine what common purchases are increasing and where you may be able to cut expenses.

For example, Chavis suggests looking at “subscriptions, which you either don’t need or that you’re not getting the value for.” If you’re not ready to cancel a subscription outright, consider downgrading to a more basic, cheaper subscription level. 

To decrease your food budget, you might want to limit dining out or completing your grocery list before you go to the store, to avoid overspending and impulse purchases. 

Looking for weekly deals and buying in bulk when items are on sale can help you maximize discounts too, says Danielle Miura, certified financial planner and founder of Spark Financials, a fee-only financial advising firm in California. “We have a freezer in our garage,” she says. “Whenever there’s a really good sale … like meat on sale — we get multiple and then we store it in our freezer.”

And don’t discount the power of price comparisons. If gas is a big expense for you, for example, Miura suggests using GasBuddy, an app that locates the cheapest gas station near you. 

For more ways to save on rising prices of everyday goods, read our guide to preparing for and managing inflation.