What Is Inflation Still Sticking To?

Transportation Services Continue to Plague the Economy. Inflation has been the buzzword in economics over the past 18 months, but it’s slowly losing some of its pop.  Led downward by falling energy costs, particularly fuel declining 37% year-over-year, the Consumer Price Index (CPI) was up just 4.0% year-over-year for May 2023.  This is a far cry from the peak of 9.1% in June 2022.  Slowing inflation led the Federal Reserve to its first pause in rate hikes since January 2022.  However, inflation is still double the Fed’s 2.0% inflation target.

“Holding the target range steady at this meeting allows the (Fed) to assess additional information and its implications for monetary policy,” the Fed said in a statement after their latest meeting.  This leaves the benchmark rate at 5.00-5.25% for the time being.  What additional information is the Fed likely to focus on?

The Fed has been paying specific attention to inflation, excluding food, energy, and shelter, the so-called “super core” inflation measure.  The primary driver of the “super core,” which is ultimately keeping inflation higher than desired, has been transportation services.  Not counting airfares, transportation services accounted for over half of May’s year-over-year inflation increase.  The three components that have been persistently climbing are auto insurance premiums, leased cars and trucks, and auto repairs.

• Auto insurance premiums are up a staggering 17.1% year-over-year. This is a byproduct of higher new and used vehicle prices and replacement parts, initially caused by supply chain issues and semiconductor shortages.  Another contributing factor– the common gripe that people forgot how to drive during the pandemic might be warranted, as sadly, car accident fatalities are up 17.7% since 2019, according to the Department of Transportation.
• Auto repairs have continued to increase in price, up 13.5% year-over-year. This is partly due to the cost of car parts referenced above but primarily due to the labor market.  Blue-collar trades were particularly hit hard by the workforce exodus since the pandemic leaving many auto repair shops shorthanded or never to reopen.
• Auto leases have been directly impacted by the Fed’s rate hikes over the past 18 months. As the costs of borrowing have gone up, this has been passed on to consumers leasing new vehicles.

The only other measurement to even approach these double-digit figures is the less impactful “cereal and bakery products” category which is up 10.7% year-over-year.  Fortunately, many auto supply chain problems have been resolved, and overall prices can be expected to moderate in the near future.  It appears the Fed will continue to grapple with select sectors of the economy facing “sticky” inflation, now driven more by a tight labor market than pent-up demand.

Written by Bryan M. Kuderna.

Have you read?
Generative AI: Hype or reality?
Why employee loyalty is the new black.
Six steps for finding the best trades.
Career-Stifling Unconscious Bias Demands a Do-Together Strategy.
Why I Can’t Let Go of My Travel Addiction.

This report/news/ranking/statistics has been prepared only for general guidance on matters of interest and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, CEOWORLD magazine does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Email Address*

Name