top of page
Insight: Blog2
  • affinity

Inflation, not the eggs but the autos

It’s not egg-flation its auto insurance-flation…

In the early days of this past inflation spike there were many people pointing to the rise in egg prices as the prime example of rampant inflation.  Sure, there were many other sources of inflation, none more impactful than the huge covid stimulus and the supply chain kinks caused by the Ukraine Russian war.  However, when you turned on the TV, it was the eggs that got most of attention and outrage.  Consumer Price Index (CPI) Inflation jumped to a high of over 9.1% in early mid 2022.  The biggest contributor to the huge jump in CPI in those early days was from the spike in oil prices and the spike in the cost of core goods and food.

But after signficant action by the FED, what is still keeping inflation stubbornly over the FED’s target of 2.5%?

JP Morgan’s April, Guide to Markets, has a current chart on CPI contributors which may give us the answer and its quite surprising.

In fact, the chart shows that indeed the root causes of CPI inflation like Energy, Core Goods, Food and Dining have dropped to zero and even negative for Energy.

Though I feel like its still costing a fortune to fill my gas tank!  Maybe it’s a California thing.

Closer examination of this chart shows maybe a slight myth busting around the current narrative that inflation is in housing or shelter, think higher mortgage rates. But, the largest source may not even have its seeds in the early stimulus and supply chain factors that we highlighted earlier.  Surprise, what jumps out is the red section that attributes much of this final persistent inflation to Auto Insurance.

Yup, Auto Insurance!

Being a father of two children that drive, auto insurance has always been something of a sore spot when you think of the monthly cost to insure younger drivers in the family.  Quite candidly, the monthly insurance and gas expense is equal if not higher than the cost of the darn car.

What is going on here?

The answer is simple, particularly look to the left and right as you are driving, and it becomes readily apparent that many of the good driving habits of the past are now replaced with riskier driving habits that include driving faster and driving while texting.  Traffic deaths have been trending up since the pandemic and the accidents have been more frequent and more severe.  The severity should be a cause for concern.  Add to these, other forces like higher repair costs, labor shortage leading to higher wages, and you get much higher claims for insurers.  As an aside, one of the most expensive cars to repair and insure are Tesla’s and some rental car companies have taken note.  Lastly, crime and car thefts have been on the rise.  In the City of Los Angeles, recent “monthly reported stolen vehicles” hit the highest since 2010 and is trending higher, the worst being in downtown Los Angeles.

While egg inflation has been largely transitional, it’s clear that auto insurance inflation may be more stubborn and with us for a while. However, this may be the rise before the fall as autonomous driving may solve the inherent risks in driving and the current exacerbation caused by texting and multi-tasking while driving.  Let’s be careful out there and remember that car insurance bill!

16 views0 comments


bottom of page