Cost of Driving a Car Continues to Drive Inflation

The Bureau of Labor Statistics delivered another monthly inflation report this week, and while it wasn’t horrible, it wasn’t what the White House wanted, either. Inflation, as measured in the Consumer Price Index, went up by a seasonally adjusted 0.378 percent in March 2024 versus February 2024, which (times 12) equals an annual rate of just over 4.5 percent per year. This is much better than the double-digits with which the annual rate was flirting over a year ago, but well above the Federal Reserve’s target rate of 2 percent, the level at which the Fed says it wants to start cutting interest rates.

A significant driver of overall economy-wide inflation continues to be the cost of possessing and operating a private motor vehicle. In the back end of the report in Table 6, BLS includes several “special aggregate” sub-indices, including one for the cost of “private transportation.” At present, CPI weights the cost of private transportation at 14.798 percent of the total monthly “basket of goods” purchased by the average household, to wit:

Cost of Private Transportation
Motor fuels 3.419
New vehicles 3.648
Used cars and trucks 1.921
Parts & Equipment 0.466
Leased cars and trucks 0.517
Car and truck rental 0.133
Motor vehicle maintenance & repair 1.234
Motor vehicle insurance 2.854
Motor vehicle fees 0.541
Other 0.065
TOTAL 14.798

The numbers in Table 6 are “seasonally adjusted,” which affects some things more than others. Certain types of food, for example, are more expensive out of season than in season. Similarly, there are regular, annual price cycles for the petroleum industry (in addition to the irregular fluctuations caused by news events on top of those), so the seasonally adjusted motor fuel rates can differ significantly from the unadjusted rates. Ditto for airfares, which have some seasonal variance.

But the biggest driver this month in the cost of having a car continues to be one that does not have a seasonal adjustment – auto insurance, which grew 2.7 percent month-to-month (March 2024 over February 2024), times 12 would be a 31.9 percent annual rate. The actual March 2024 over March 2023 annual rate was only 22.2 percent (“only 22 percent!!”). Car insurance also has a very large share of the total CPI basket, estimated by BLS at 2.85 percent of all household expenses each month, which is more than they spend on apparel (2.61 percent of the basket) or on tuition and other school fees (2.39 percent of the basket).

Overall seasonally adjusted CPI increased by 3.78 percent this month. Here are the major contributors of that increase, per Table 6 in the release:

Shelter 1.51
Private transportation 1.38
Everything else 0.89

Rent (and equivalent mortgage costs) and the cost of driving a car were the two major factors in annual inflation staying out of the Fed’s grasp in March 2024, which will keep high interest rates in place longer, which will keep the price of shelter going up and the cost of car loans high.

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