Well, if you were hoping inflation would shrink down to the Federal Reserve’s preferred threshold of 2 percent, you are out of luck. Inflation is still much lower than the COVID-era highs. But, according to the Bureau of Labor Statistics’ latest Consumer Price Index report, overall year-over-year price increases amounted to 3.5 percent in March, marking a small uptick from February’s measurement.
On the surface, that doesn’t sound great for your food bills. But some everyday essentials aren’t increasing all that much in price, according to a handy inflation-breakdown chart from Yahoo Finance. Groceries are up just 1.2 percent, while gas is up 1.3 percent. Rent, at an increase of nearly 6 percent, certainly remains an inflation driver. But the biggest culprit, by far, is … auto insurance, which saw a 22.2 percent year-over-year surge in March.
When it comes to the Department of Labor’s inflation calculations, motor insurance hardly carries much weight compared with more common goods like food and energy. But while once-punishing increases in the latter two categories are finally flattening, the car insurance spike is pronounced and heightened enough that it’s throwing the whole equation off-balance. Motor insurance inflation ballooned far more from February to March than it did from January to February. With that acceleration, March saw the highest level of auto insurance inflation in nearly 50 years. Meanwhile, prices for used, new, and rented vehicles are all cooling off, per the CPI report.
This is a shift from recent trends. When inflation began its steady climb in mid-2021, year-over-year car insurance increases peaked at a surprising 16.9 percent—but those were far outstripped by mammoth price hikes for fossil fuels and used vehicles, which saw surges in the neighborhood of 40 percent. The inflationary summit in the months following Russia’s 2022 invasion of Ukraine was driven by resultant shocks in agriculture and energy (up to 10 percent and 40 percent, respectively), while motor insurance saw much less of an increase. But later in 2022, as overall inflation began to wane, auto insurance began seeing double-digit yearly increases yet again—and it kept growing, for the next year and a half, until it breached 20 percent last December. While food, energy, and vehicle prices all calmed down, car premiums remained an untamable beast.
This financial semitruck stuck out and kept inflation above economists’ projections, and many weren’t quite sure what to make of it at first. State-by-state policy differences were one possible factor, some experts told Reuters in January. Maybe insurance companies weren’t getting enough monetary protection from reinsurers (businesses that help to provide extra risk protection) especially as they anticipated the effects of wintery disasters. Lael Brainard, the White House economic adviser who’d previously helped lead the Federal Reserve, pointed to the ever-persistent “greedflation” bogeyman—i.e., corporations using economic conditions as an excuse to overcharge customers—as a possible explanation.
As premiums continued to soar into February, however, the actual reasons became clearer. For one, interest rate hikes pretty much always cause insurers to boost their premiums, as heightened liabilities incentivize loan-writers to take fewer risks. Plus, consumer vehicles are still more expensive than they were pre-pandemic. Pricier cars are more expensive to insure, and cars in general are more costly to fix, too: The parts are more complex and harder to source. Then there are electric vehicles, which are more expensive on average to repair at the moment. Meanwhile, a lot of folks have flocked to unnecessarily large gas-powered SUVs that are harder to maintain and to fix, considering how exorbitant their individual components are. This has likewise been reflected in CPI data, with the motor vehicle maintenance and repair inflation rate reaching 11.1 percent in September. (It currently sits at 8.5 percent.)
There’s yet another reason for the auto-insurance surge: terrible, reckless, angry driving and its multifaceted consequences.
Since the peak of the pandemic, the car-centric lifestyle has gotten far more dangerous. The gun-safety nonprofit Everytown found that by 2022, incidents of road-rage shootings had nearly doubled from 2018. The federal government also measured record spikes in driving fatalities from 2021 to 2022. Even though that increase began to trail off in subsequent years, the sheer number of traffic deaths remains much higher than it was pre-2020. As a New York Times Magazine report noted earlier this year, a rise in aggressive and careless driving habits—speeding, running traffic lights, rushing intersections, driving drunk, refusing to wear a seatbelt—has persisted even as roadways have clogged up again. And drivers are pulling off these horrific trends while seated in bigger and bigger cars, ones which obstruct their vision and tower over smaller vehicles (as well as people).
That, of course, translates into money spent cleaning up the messes. Auto companies have been receiving not just more repair claims on average, but more severe claims overall, as Yahoo Finance has pinpointed. With bodily injuries (both in and outside of the vehicle) occurring alongside car damage, medical and property claims have escalated. Plus, there simply aren’t enough trained mechanics and technicians to carry the load when it comes to the more luxurious, multifaceted vehicles involved in all these crashes and injuries and killings.
Bigger, more dangerous cars that guzzle fuel and are powered by drivers who, carrying rage and bad habits from the COVID era, run rampant over our streets—that’s what’s helping to keep inflation higher these days. There’s only so much the Fed can do about that. So, if consumers are once again feeling pessimistic about the economy, maybe they could start looking at what goes on behind their steering wheels.