American drivers can’t catch a break | yahoo!Finance
Cruising the highways in America has always been a symbol of freedom, but lately, it’s become a costly affair. The aftermath of the pandemic has seen a significant rise in the expenses associated with owning and operating a car, with the latest burden being the soaring cost of auto insurance. As of February, auto insurance rates have increased by 20.6% year over year, marking the largest jump since 1985. This spike in insurance costs is now one of the key factors keeping overall inflation rates high.
While overall inflation has decreased from its peak of 9% in June 2022, it experienced a slight uptick from 3.1% in January to 3.2% in February. Car insurance, which makes up 2.5% of the government’s basket of goods and services for calculating inflation, plays a significant role in this. The Federal Reserve, which closely monitors core inflation (excluding food and energy), noted a 0.4% increase in February from the previous month.
The cost of car insurance now averages $212 per month, or $2,545 per year. For those financing their vehicles, insurance can add 25%-40% to the monthly cost of ownership, a factor often overlooked by buyers. Housing costs, another major component of core inflation, have also risen by 5.7% year over year.
However, not all economic indicators are negative. Groceries have seen only a 1% increase year over year, and prices for appliances, electronics, and toys are actually dropping. The spike in insurance rates is attributed to several factors, including COVID-related supply chain issues leading to a shortage of new vehicles and higher repair costs due to advanced electronics in modern cars. Additionally, increased driving speeds have led to more severe crashes, further driving up insurance costs.
Car prices have moderated recently, but they remain significantly higher than pre-pandemic levels. The average cost of a new car is now $47,401, and a typical used car is nearly $26,000. While gasoline prices have decreased slightly, they are still 32% higher than four years ago.
There are some positives, though. The electric vehicle market is seeing price drops, including for models like Tesla, and gas prices are expected to lower in 2024. As automakers return to normal production levels, car prices should continue to dip…………..
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Rising Dough
Considering the current trends in the automotive industry, how might the changes in car ownership costs influence consumer behavior, particularly among young drivers, and what potential strategies could businesses in the automotive sector adopt to attract and retain customers in this changing economic landscape?
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