Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Car Insurance Keeps Climbing While CPI Cools
Transcript
- Lucas: So Luna, you just got your car insurance renewal notice last month, right? Luna: Oh, don't remind me. It jumped almost 18 percent. I nearly choked on my coffee. Lucas: And that's the puzzle. Overall inflation is cooling — July CPI came in essentially flat, and core inflation is still easing. Yet auto insurance premiums are up more than 20 percent year-over-year. It's one of the biggest line items keeping the cost of living uncomfortable for a lot of people. Luna: So what gives? Why is this one category just refusing to cool off? Lucas: Well, there are three forces at play, and they're kind of tangled. The first is that insurance is a lagging indicator. Insurers price policies based on past claims data, not current inflation. So repair costs, medical bills, legal fees — those were climbing sharply in 2024 and 2025, and the premiums you're seeing in 2026 are catching up to those losses. Luna: So we're paying for yesterday's inflation, basically. Lucas: Exactly. And the second force is that repair costs haven't come down as much as other goods. Cars are more complex, more sensors, more expensive parts. Even with wholesale prices flat in July, the labor and parts for body shops are still pricier than pre-pandemic. That keeps claim payouts high. Luna: And the third? You said there were three. Lucas: The third is state regulation. Insurance rates are approved by state commissioners, and they were under pressure to keep rates low during the pandemic. Now they're catching up, approving bigger hikes to keep insurers solvent. So it's a mix of past costs, current repair expenses, and a regulatory backlog. Luna: That explains the sticker shock. But is there any relief in sight? I mean, CPI is basically flat, right? Lucas: Yeah, July CPI was essentially unchanged, and core CPI only ticked up a hair. The Fed's preferred measure, core PCE, has been cooling too. But insurance premiums are stickier because they reflect multi-year trends. I'd expect them to keep rising for another few quarters, but at a slowing pace. Luna: That's something. We'll take a slowing pace, I guess. Lucas: And if you want to keep up with why your other bills are doing what they're doing, that's kind of the whole point of this show. If today was actually useful to you, the way we keep this ad-free is listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo. It's a small thing, but it keeps us going. Luna: Yeah, and it honestly helps us keep digging into these questions. We really appreciate anyone who does. Lucas: So back to insurance. One angle that people don't think about is how insurance costs feed into the CPI calculation itself. The Bureau of Labor Statistics measures premiums directly, but they also include a component for how much of your premium goes to claims versus profits. Luna: Oh, that's interesting. So they're basically separating the cost of coverage from the insurer's margin? Lucas: Right. And that's why even as broader inflation cools, the insurance line can stay elevated — because the claims cost component is still rising. It's a really specific measure, but it has an outsized effect on how people feel the economy, because it's one of those unavoidable bills. Luna: And it's not just car insurance. Homeowners, renters, health — they're all in the same boat. But car is the one that everyone sees. Lucas: Exactly. And there are a few things that could finally bring it down. If repair costs keep easing, and if state regulators keep approving bigger increases now, then eventually rates will stabilize. And some states are starting to see moderating claim frequency, which helps too. Luna: What about telematics? I've seen those apps that track your driving and give discounts. Lucas: That's a real thing, and it's one of the few ways people can actually lower their premium in the short term. Insurers are pushing usage-based programs, and they can cut costs by 10 to 20 percent for safe drivers. It's not for everyone, but it's a lever that's actually in your hands. Luna: That's a good tip. I might have to look into that. Lucas: So overall, the story here is that inflation isn't a monolith. You have goods prices falling, services like rent moderating, but insurance is just stuck in a cycle of its own. And that's why the average person's cost of living sometimes feels hotter than the headline number suggests. Luna: So the Fed sees core inflation cooling, but we're still feeling the pinch in specific areas like this. Lucas: Exactly. And that's what the Fed is wrestling with. They're holding rates steady right now, with the effective fed funds rate at 3.63 percent, and they're watching these lagging components closely. If insurance and other sticky services don't ease, they might have to keep policy tight for longer. Luna: So what should the average person do besides maybe telematics? Lucas: Shop around. Rates vary hugely by company, and loyalty doesn't always pay. Also, consider raising your deductible if you can afford the out-of-pocket. And bundle your policies if you can. Those are the practical steps, but the broader point is to understand that this is a structural issue, not just a random hike. Luna: It's nice to know it's not just me, and there's a reason behind it. Lucas: Absolutely. And if you're curious about how other weird components of CPI are affecting your wallet, we've covered everything from gold to gym memberships. This one just happens to be one of the most direct hits. Luna: Well, hopefully next year's renewal is a little less painful. Lucas: Fingers crossed. But if it's not, you'll know exactly why — and maybe you'll be armed with a few more tools to push back.