High Inflation Fueled By Gas, Airfare, And Car Insurance

Inflation remains high into the new year, according to new government data.

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Despite the fact that the Federal Reserve is raising interest rates in order to slow inflation, some economists are concerned that high prices may prove to be sticky in the long run.

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As some prices climbed in January, others fell, according to the January consumer price index data released by the U.S. Bureau of Labor Statistics on Tuesday. CPI measures changes in consumer prices over time by measuring a basket of goods and services.

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Prices were fluctuating in the transportation sector.

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Among the factors contributing to this month's overall 0.5% increase in the CPI, was a jump in the price of gasoline, which was one of the major contributors. There was a 2.4% rise in gasoline prices in January, following a 7% fall the month before.

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Yet, gasoline wasn't among the top costs over the past 12 months, with a 1.5% increase. (The benchmark inflation rate for all items was 6.4%).

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For the past 12 months, fuel oil prices have risen 27.7% but declined 1.2% in January.

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In 2022, high gas prices made headlines, prompting gas tax holidays in some states. However, those prices have decreased since then.

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As AAA reported on Thursday, the average price of a gallon of gasoline in the nation is $3.42, an increase of a penny from the previous week. As of June, the highest average price that has been recorded was $5.02.

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Andrew Gross, a spokesperson for AAA, said that gas prices rose in January mainly because of bad weather. Gulf Coast refineries and California refineries were affected by winter storms. Additionally, a fire at a Colorado refinery unrelated to the weather is causing problems.

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Consumers also pay about 60% of their gas prices due to oil prices, according to Gross.

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As we saw in January, the jump in gas prices was an example of how slowing inflation - or disinflation - is not necessarily going to happen in a straight line, according to Brett House, associate professor of practice in economics at Columbia University.

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“There is the possibility of exogenous shocks or economic shocks that are coming out of the left field and do not have any economic basis ... knocking prices down significantly," House said.

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Other transportation costs are in flux

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In the 12 months ending Jan. 30, new vehicles increased by 5.8%, and in the month ending Jan. 30, new vehicles increased by 0.2%.

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Used cars and trucks, a category that surged during record inflation, are down 11.6% for the past year and down 1.9% for January.

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As well as airfares, which increased 25.6% over the past year, motor vehicle repairs increased by 23.1%, public transportation including airfares increased by 17.1%, and motor vehicle insurance increased by 14.7%.

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In response to higher parts prices, insurance companies are raising policy premiums, according to Wharton School finance professor Nikolai Roussanov.

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The American Institute for Economic Research says there could also be other factors at play, such as rising vehicle costs, higher accident rates during the pandemic, and poorer returns on the premiums companies invest in the market, according to Peter C. Earle, an economist there.

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Based on the data for January, there seems to have been some signs that the trend of higher prices in certain categories may be subsiding, according to the data for the month. According to a seasonally adjusted basis, airfares were down 2.1% for the month of June. The number of people staying in hotels and motels away from home was up by 1.5%, however.

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Some travel costs may continue to rise as a result of persistently high inflation in services, House says.

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In addition to the strong demand for travel now that Covid-19 restrictions have been lifted, House noted that prices have also been affected.

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"People aren't spending as much on goods as they used to," House said. “Experiences are becoming more important, people are getting out, attending cultural events, and traveling more.”