Insurance costs drive up overall inflation

It's costing Americans more to protect themselves against disasters, a development that is pushing up official inflation figures.

Various types of insurance – including auto, medical and property protection – cost more, at least according to official inflation figures. Although it is difficult for economic policymakers to do much to quell the various drivers of this trend, the pressure is helping to push up prices overall.

“Insurance of different types — home insurance, but also auto insurance, and things like that — has been a significant source of inflation over the last several years,” said Jerome H. Powell, chairman of the Federal Reserve. during testimony to Congress last week. “And that’s due to a million different factors.”

Auto insurance is the biggest contributor to overall inflation, said Omair Sharif, founder of research firm Inflation Insights. Part of the increase in auto insurance comes because parts and replacement vehicles have become much more expensive in recent years, and that's slowly trickling down to insurance premiums, he said. .

Economists at Goldman Sachs expect auto insurance metrics to rise sharply again in February, “reflecting the strength of online insurance pricing data,” the economists wrote in a note announcing the publication of consumer prices on Tuesday.

Insurance may stop adding as much to inflation over time, as the lagged effects of rising auto costs, in particular, become more incorporated into insurance premiums. But it's unclear how long it will take for the effect to fully wear off.

And it's not just car insurance that has progressed. Health care insurance is also higher, although it's measured against inflation in a more outlandish way, basically by looking at an insurance company's premiums. earnings after payment benefits. Mr. Sharif expects health insurance to remain positive at least until April, when the data is updated, and probably after that.

And tenant and household insurance has been growing rapidly — likely in part because climate-related issues like wildfires and rising sea levels are making homes in some parts of the country more expensive to insure, increasing policy premiums which feed into this measure.

“Longer term, companies are pulling back from writing insurance in some coastal areas,” Mr. Powell noted, adding that “this is a significant problem.”

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