American motorists cannot get a discount on car insurance rates

If cruising the highway is an American birthright, it has also become an expensive one.

The cost of owning and operating a car has skyrocketed in the wake of the pandemic. And just as one part of car ownership has become more affordable, another is destroying the budget.

The final sticking point for motorists is the cost of car insurance, which rose 20.6% year-on-year from February – the biggest increase in the cost of car insurance according to government data going back to 1985. It’s also the biggest price increase for February in the 28 categories that Yahoo Finance has been tracking since 2021.

Car insurance doesn’t get nearly as much attention as headlines like food, gas and rent.

Yet it is now one of the few spending categories that keeps overall inflation stubbornly high.

Headline inflation has fallen sharply from a peak of 9% in June 2022. But it rose from 3.1% in January to 3.2% in February, raising concerns that inflation may not disappear completely after all.

Car insurance accounts for 2.5% of the goods and services basket that the government measures when calculating the overall inflation rate and is among the categories counted towards the ‘core’ inflation measure – which excludes food and energy – which Federal Reserve is keeping a close eye on it. eye on. Core inflation rose 0.4% in February from the previous month and 3.8% from the previous year.

Give Rick Newman a note, follow him on Twitteror sign up for his newsletter.

Insurance now costs the average car owner $212 per month, or $2,545 per year, according to Bankrate.

For buyers who take out a loan, the typical monthly payment is about $530 for a used car and $740 for a new model. Insurance increases monthly ownership costs by 25%-40%, money that some buyers forget to consider when making a purchase.

The other thing keeping inflation high is the cost of housing, with the shelter index, another element of core inflation, rising 5.7% year on year. The cost of shelter is responsible for more than two-thirds of the increase in core inflation over the past year, according to the BLS.

However, other key items are moving in the right direction, such as groceries, which are up just 1% year over year. And some things are even getting cheaper, including appliances, electronics and toys.

No cause whatsoever

What is frustrating for consumers is that there is no single cause for the rising insurance rates.

COVID-related supply chain challenges have led to a shortage of new vehicles in recent years, causing prices to rise, which in turn increases repair costs. Modern vehicles are also packed with electronics and other systems that make them more expensive to repair.

Americans also seem to be driving faster, making accidents worse. All this increases insurance costs.

And as anyone who has tried to buy a car lately knows, this comes after a huge increase in car prices that has changed affordability for many motorists.

Year-on-year price increases for new cars reached 13% in 2022, while inflation for used cars exceeded 40%. A shortage of semiconductors and other components reduced new car production in 2021 and 2022, pushing many buyers into the used car market and causing unprecedented inflation.

Car prices have moderated as the supply shortage has eased, but overall prices are still much higher than pre-COVID levels. New car prices are 21% higher than four years ago, just before the COVID outbreak. Prices for used cars have increased by 31%.

According to Kelley Blue Book, the average cost of a new car is now $47,401. – although JD Power just calculated that the average transaction price fell by $4,700 last month. The typical used car costs almost $26,000.

Refueling a car is also not a bargain. Gasoline prices are down about 4% year over year to about $3.40 per gallon. But gasoline is still 32% more expensive than four years ago, and some drivers are still concerned about prices reaching $5 per gallon in 2022, the highest nominal price ever in the United States.

There are a few bright spots, though, especially for buyers who can afford to be patient.

A glut of electric vehicles is causing double-digit price drops for some models, including Teslas, and it seems likely that this will continue. Gasoline prices could be slightly lower in 2024 than in 2023. And transaction prices, while high, have fallen in recent months, which should continue as automakers return to more normal production levels.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.

Click here for political news on the business and money policies that will determine tomorrow’s stock prices.

Read the latest financial and business news from Yahoo Finance

Leave a Reply

Your email address will not be published. Required fields are marked *