Car-related costs are still boosting U.S. inflation
Add Axios as your preferred source to
see more of our stories on Google.
Yesterday's inflation data came in a touch hot — and you can blame your car.
What's happening: Auto insurance prices for American consumers are rising at their fastest pace in more than 40 years. And gasoline prices, as measured by the Consumer Price Index, surged almost 11% in August alone, on the back of rising oil prices and refinery shutdowns.
The big picture: U.S. insurers have been jacking up rates to offset heavier-than-expected losses on personal auto insurance policies.
- The surprising size of checks insurers have been forced to write for auto policies is essentially an echo of the vehicle price surge that drove inflation in 2021 and 2022. Now, fixing those more expensive cars is also more expensive.
- Prices for auto parts are also up thanks to inflation, raising the price of repairs.
- Meanwhile, tight labor markets jacked up the costs of sending your ride to the body shop. Lack of labor also delayed repairs, resulting in increased insurer spending on car rentals.
- And the cost of payouts for injuries has been driven up by inflation for health care services, analysts say.
What they're saying: "Insurers have been struggling with car replacements as well as replacement parts as well as labor shortages," wrote insurance analysts at Fitch Ratings in a midyear update on the auto insurance market. "Losses increased more than companies anticipated when they priced the policies."
- Last year "was among the worst years for industry personal auto profitability," said Tricia Griffith, CEO of Progressive, the country's second-largest personal auto insurer, on a conference call with analysts last month. "And so far, 2023 has been worse."
The bottom line: Auto insurance rates are likely going to keep rising for the foreseeable future, so budget accordingly. And given the recent push higher in crude oil prices, gasoline won't be a source of relief any time soon.
