What could happen to credit card rates now that inflation is holding steady?

Borrowers with revolving debt have been waiting for months — and in some cases years — on end to get a meaningful break from this expensive credit card environment . But with average credit card APRs still hovering near record-high levels of over 22%, carrying a credit card balance remains costly — and the latest inflation data may not be so welcome for the borrowers who have been hoping rate relief is just around the corner.

The Consumer Price Index (CPI) rose 3.4% annually in August, according to the latest report , matching July's pace but coming in slightly above the 3.3% economists had expected. Core inflation, which strips out volatile food and energy costs, eased slightly on an annual basis, but accelerated from July on a monthly basis.

That combination matters because the Federal Reserve is set to make its next interest rate decision on September 16, and inflation remains well above the central bank's 2% target. So, with the Fed's decision on the horizon, credit card users may want to pay close attention to what happens next — particularly if they're carrying a balance from month to month.

Inflation holding steady might sound like relatively good news after the sharp price increases Americans have faced in recent years. But at 3.4%, inflation is still running too hot for the Fed's comfort. And because credit card rates are closely connected to the Fed's benchmark rate, that could have important consequences for cardholders.

Most credit cards have variable interest rates tied to the prime rate, which generally moves alongside changes to the federal funds rate. So, when the Fed raises its benchmark rate, the prime rate typically rises as well, and variable credit card APRs tend to follow .

That's why the August inflation report could be particularly important. The Fed has been looking for convincing evidence that inflation is moving sustainably toward its 2% target, but the latest data doesn't necessarily provide it. Overall inflation remained at 3.4%, while core prices increased 0.3% from July, an acceleration from the prior month's 0.2% increase.

Those numbers have strengthened expectations that the Fed could raise rates at its September meeting. Following the CPI release, the probability of a rate hike jumped to 90%, up from 70% the previous day, according to CME FedWatch data.

If the Fed follows through with a rate hike at its upcoming meeting, credit card rates could rise soon afterward. And, even a relatively small increase could make revolving balances more expensive, particularly for borrowers carrying thousands of dollars in debt. Higher APRs mean more of each monthly payment can be absorbed by interest, which can also lengthen the amount of time it takes to eliminate the card balance.

That said, a rate increase isn't guaranteed. Core inflation's annual rate declined to 2.4% in August from 2.5% in July, which is a positive sign, and the Fed will weigh a range of economic indicators when deciding what to do.