If traveling on the highway is Americans' birthright, it has also become expensive.
In the aftermath of the pandemic, the cost of owning and operating a car has skyrocketed. And just as one element of car ownership has become more affordable, another is destroying budgets.
The latest pinch for drivers has been the cost of car insurance, which rose 20.6% year-on-year as of February. This is the biggest rise in car insurance costs since 1985, according to government data. This is also the biggest price increase in February. 28 categories Yahoo Finance is tracking from his 2021.
Car insurance doesn't get as much attention as major items like food, gas, and rent.
But this is now one of the few spending categories that keeps overall inflation stubbornly high.
Overall inflation has fallen significantly from its peak of 9% in June 2022. However, the rate rose from 3.1% in January to 3.2% in February, raising concerns that inflation is not coming to an end after all.
Auto insurance makes up 2.5% of the basket of goods and services the government measures when calculating the overall inflation rate, and it is one of the few “core” inflation measures (food and It is one of the categories counted in (excluding energy). Keep your eyes peeled. The core inflation rate in February rose 0.4% from the previous month and 3.8% from the previous year.
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According to Bankrate, the typical car owner's insurance premium currently costs $212 per month, or $2,545 per year.
Typical monthly payments for buyers with financing are about $530 for a used car and $740 for a new car. Insurance can add 25% to 40% to your monthly cost of ownership. This is an amount that some buyers forget to consider when making a purchase.
Another factor keeping inflation high is housing costs, with the housing index, another component of core inflation, up 5.7% year-on-year. The BLS said shelter costs accounted for more than two-thirds of the rise in core inflation last year.
But other important items, such as groceries, are trending in the right direction, increasing by just 1% year over year. And some things are actually getting cheaper, like appliances, electronics, and toys.
no single cause
Frustratingly for consumers, there is more than one reason for rising insurance premiums.
Supply chain challenges related to the coronavirus have led to a shortage of new cars in recent years, driving up prices and, as a result, repair costs. Additionally, modern vehicles are packed with electronics and other systems, which make repairs more expensive.
Americans also appear to be driving faster, which is making crashes worse. All of this increases insurance costs.
And, as anyone who has tried to buy a car recently knows, this comes after a huge jump in car prices that changed the affordability equation for many drivers.
In 2022, the year-on-year increase in new car prices reached 13%, and the inflation rate for used cars exceeded 40%. Shortages of semiconductors and other parts have sharply reduced new car production in 2021 and 2022, sending many buyers into the used car market and causing unprecedented inflation.
Car prices have fallen as supply shortages ease, but overall prices remain far higher than pre-COVID-19 levels. New car prices are up 21% compared to four years ago, just before the coronavirus outbreak. Used car prices rose 31%.
According to Kelley Blue Book, the average price of a new car is currently $47,401. The price of a typical used car is close to $26,000.
Filling up your car with gas isn't a bargain either. Gasoline prices fell about 4% from a year ago to about $3.40 per gallon. But gas prices are still 32% higher than they were four years ago, and some motorists remain upset about prices that will reach $5 a gallon in 2022, the highest nominal price in U.S. history.
However, there are some bright spots, especially for buyers who can afford to be patient.
An oversupply of electric vehicles has caused prices for some models, including Tesla, to drop by double digits, a trend that is expected to continue. Gasoline prices in 2024 are likely to be slightly lower than in 2023. And while trading prices were high, they have fallen over the past few months, a trend that should continue as automakers return to more normal production levels.
Rick Newman is Yahoo Finance. Follow him on Twitter @rickjnewman.
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