Morningstar DBRS states that U.S. low-income households face increasing stress, raising the risk of overdue payments.

Reuters, October 21 - Morningstar DBRS said on Wednesday that as inflation (link) remains elevated and the Iran war (link) drives up gasoline prices, budgets for low-income US households face further pressure, increasing the risk of late payments and bad debt write-offs across most consumer asset classes.

Persistently high inflation (link) prompted the US Federal Reserve (Fed) to raise interest rates in September, with the potential for further increases in the future, accentuating the impact of hikes on consumers.

Details are as follows:

• The rating agency noted that since the war in Iran broke out in February, the average gasoline price has risen by 46% as of October 5, reaching $4.50 per gallon

• By comparison, the average gasoline price over the past four years was $3.64 per gallon, while in the 12 months prior to the war it was $3.45 per gallon

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• Morningstar DBRS pointed out that lenders focusing on subprime consumers may face higher provisioning costs, which will drag down their profitability and potentially place pressure on their credit ratings

• Provisions, also known as “emergency buffers,” are funds banks set aside in advance to cover credit losses that could occur when borrowers fail to repay loans

• Subprime borrowers typically have lower credit scores and weaker financial buffers, making it harder for them to absorb higher costs and increasing the risk of loan delinquencies

• US lenders (link) reported results this month showing credit quality has remained stable so far, with executives noting that consumers across income groups and the overall economy continue to show resilience

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