Rebound in Car Insurance Premiums Helps Bump Up Inflation Temporarily
Kiplinger’s latest forecast on inflation
A rebound in the prices of car insurance, airfares, car rentals and a continuing uptick in gasoline prices pushed up the consumer price average by 0.6 percent in July. Auto insurers had granted one-time premium discounts to customers this spring, but have now largely reversed course, given the resumption in driving. Airfares and car rental prices are moving up from the extremely depressed levels they were at, but still remain below normal. Expect monthly price increases for the rest of the year to be modest, as most of the price rebounds that would be expected have already happened.
Food prices took a breather in July, as meat prices dropped 5%. Outbreaks at meat processing plants had caused meat prices to jump, but increasing production has brought them back down somewhat. Egg prices are also retreating from their recent high, declining in each of the past three months.
The price of medical services is up 5.9%, but this rise started before the virus. It has mostly been driven by rising health insurance costs (up 18.7%) and hospital charges (up 5%).
The cost of shelter is running lower than normal right now because rent increases have been slowed by the pandemic. But shelter costs may rise a bit faster later this year as rents pick up.
The inflation rate should end the year at 1.1%, far below last year’s 2.3%. Core inflation, which excludes the costs of food and energy, will continue to run higher than the headline rate, at about 1.9% over the course of this year.
A note about data reliability: An issue that government data collectors face is that at the moment, they cannot go into stores that are shut down and collect price data. Therefore, the reliability of some of the numbers may be suspect, though the Bureau of Labor Statistics managed to obtain three-fourths of their normal price quotes online and through other means. The BLS also has statistical procedures in place to keep missing data from biasing the overall numbers.
- 1Kiplinger’s Economic OutlooksRegularly updated insights on the economy’s next moves.
- 2GDP: -5.8% growth in 2020, down from 2.3% in 2019Kiplinger’s latest forecast for the GDP growth rate
- 3JOBS: States are reopening, but workers will come back slowlyKiplinger’s latest forecast on jobs
- 4INTEREST RATES: 10-year T-notes staying below 1.0% for a whileKiplinger’s latest forecast on interest rates
- 5INFLATION: 0.6% through '20, from 2.3% at end '19 - currently readingKiplinger’s latest forecast on inflation
- 6BUSINESS SPENDING: Down 10% to 20% in '20Kiplinger’s latest forecast on business equipment spending
- 7ENERGY: Crude oil trading from $35 to $40 per barrelKiplinger's latest forecast on the direction of energy prices
- 8HOUSING: Total starts down 6.6% in '20Kiplinger's latest forecast on housing starts and home sales
- 9RETAIL SALES: E-commerce surge will endureKiplinger’s latest forecast on retail sales and consumer spending.
- 10TRADE DEFICIT: Widening 3% in ’20Kiplinger's latest forecast on the direction of the trade deficit.