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How transportation costs add to inflation

How transportation costs add to inflation


A gas station in Arlington, Virginia.

Xinhua News Agency | Xinhua News Agency | Getty Images

New government data for January shows high inflation has continued into the new year.

That has some economists worried high prices may prove to be sticky, even as the Federal Reserve works to slow inflation by raising interest rates.

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Yet as some prices climbed, others subsided, according to the January consumer price index data released by the U.S. Bureau of Labor Statistics on Tuesday. The CPI measures changes in consumer prices by measuring a basket of goods and services over time.

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Transportation costs were one area where prices were in flux.

Notably, a jump in gasoline prices was one of the contributors to an overall 0.5% increase in the CPI for the month. Gasoline rose 2.4% in January, while it fell 7% the previous month.

Yet looking back at the past 12 months, gasoline – at 1.5% – did not make the list of top costs. (The benchmark inflation for all items came it at 6.4%.)

Meanwhile, fuel oil dipped 1.2% in January but was up 27.7% for the past 12 months.

While high gas prices made headlines in 2022, prompting gas tax holidays in some states, those prices have subsided from last year’s highs.

The national average for a gallon of gas is $3.42, AAA reported on Thursday, up a penny from the previous week. The highest recorded average price was $5.02 as of June.

Gas prices “did rise in January and that was mostly due to the weather,” said Andrew Gross, spokesperson at AAA. Winter storms affected refineries on the Gulf Coast and in California. Separately, a weather-unrelated fire at a Colorado refinery is also causing problems.

Oil prices also influence about 60% of what consumers pay at the pump, according to Gross.

January’s jump in gas prices is one example of how the slowing inflation — or disinflation — will not necessarily happen in a “straight line,” according to Brett House, professor of practice in economics at Columbia Business School.

“You have the potential for exogenous shocks or economic shocks that are coming out of the blue that don’t have an economic underpinning to them … knocking prices for substantial changes in any given month,” House said.

Other transportation costs are in flux

New vehicles are up 5.8% over the past 12 months ending Jan. 30, and up 0.2% for the month.

However, used cars and trucks, a category that surged during record high inflation, are now down 11.6% for the past 12 months and down 1.9% for January.

Other transportation categories that were up over the last 12 months include airfares, which climbed 25.6%; motor vehicle repairs, which rose 23.1%; public transportation including airfares, up 17.1%; and motor vehicle insurance, up 14.7%.

Car insurance has been increasing as insurance companies reprice policies to reflect higher prices for parts, noted Nikolai Roussanov, a finance professor at the Wharton School at the University of Pennsylvania.

Other trends, like rising vehicle costs, higher accident rates during the pandemic and poorer returns on premiums invested in the market by insurance companies, may also be factors, according to Peter C. Earle, an economist at the American Institute for Economic Research.

However, there were some signs higher prices in certain categories may be subsiding, based on data for the month of January. Airfares were down 2.1% for the month, on a seasonally adjusted basis. Yet lodging away from home, including hotels and motels, was up 1.5%.

Persistent high inflation in services may continue to push up certain travel costs, according to House.

Strong demand for travel now that Covid-19 restrictions have lifted has also affected prices, House noted.

“People are not spending or emphasizing as much spending on goods as we’ve seen previously,” House said. “People are investing in experiences, getting out, going to cultural things, travel.”



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