Even with travel restrictions going away, consumers aren't as eager to hop on a plane as they once were, due to rising costs that make everyday expenses steeper — and air travel almost prohibitive.
In this context, cash-back cards are proving to be a crucial budgeting tool for the consumers who are hit hardest by inflation.
“Loyalty points are more important than ever to consumers and are probably the best way to hedge inflation, with selective use of cards,” said Brian Riley, director of Mercator Advisory Group’s credit advisory service.
One in four consumers redeemed credit card rewards to pay for essential purchases, according to a survey of 1,500 U.S. credit card customers surveyed in April by The Harris Poll for NerdWallet.
More than half, or 62%, of respondents said inflation has forced them to change the way they used a credit card in the last 12 months.
Elite travel credit card rewards programs may be unaffected in the near term, with high-end travelers better able to absorb airline ticket prices that have risen by as much as 50% in recent months. This has benefited card issuers who cater to consumers who can still afford to travel —
“With the price of gas and certainly jet fuel rising, travel is not so much fun, and when you consider pilot shortages and air crew staffing challenges, airline bottom lines face significant risk,” Riley said.
Major credit card issuers are responding to the shift in consumers' top-of-wallet card preferences by rolling out new loyalty products and promoting signup bonuses for new consumers to earn cash rewards on everyday spending on food and fuel.
So far issuers intent on rebuilding card spending after a protracted slowdown during the pandemic are keeping cash-back offers competitive, but that could change, according to one analyst.
"Cash-back has been the most popular form of rewards for many years, although inflation could take a bite out of the earn basis, meaning people will get back less money for transactions," said Patricia Hewitt, a payments industry advisor at PG Research & Advisory Services.
Amex's Blue Cash Preferred card, which carries a $95 annual fee, offers users 6% cash back at U.S. supermarkets along with 6% back on streaming subscriptions and 3% back at gas stations. Amex is offering new customers a $400 signup bonus if they spend $3,000 on the card in the first six months.
Citi’s no-annual-fee Custom Cash Mastercard also has a strong focus on household budgeters, giving users 5% cash back on their top spending category each month on the first $500 and 1% back on everything after that. Users who spend $750 on purchases in the first three months earn $200 in cash.
U.S. Bank’s Altitude Go Visa card, with no annual fee, gives users quadruple points at restaurants and double points at supermarkets and gas stations, and users who spend at least $1,000 in the first 90 days earn 20,000 points worth $200.
JPMorgan Chase, which has a long track record of using credit card rewards promotions to win new customers — and keeping them in the fold by making deeper discounts contingent on using its proprietary services — is still pushing travel benefits alongside everyday spending.
The Chase Freedom Unlimited Visa with no annual fee enables users to earn 5% cash back on travel-related spending booked through the Chase Ultimate Rewards portal, 3% cash back at restaurants and 1.5% on all other purchases.
The similar Chase Freedom Flex Mastercard offers cash-back rewards on everyday travel booked through Chase, plus 3% cash back at restaurants and 1% cash back on all other purchases.
Issuers still have many levers available to alter their rewards structures in response to economic changes.
"Card issuers sometimes try to devalue rewards programs and if that happens consumers can't fight it, except to shift programs," Riley said.
