How transportation costs contribute to inflation

A gas station in Arlington, Virginia.

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New government data for January show that high inflation will continue into the new year.

That has some economists worried that high prices could prove persistent even as the Federal Reserve works to curb inflation by raising interest rates.

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But while some prices rose, others fell, according to January CPI data released by the US 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 fluctuated.

Notably, an increase in gasoline prices was one of the factors contributing to CPI’s overall 0.5% rise for the month. Gasoline rose 2.4% in January while falling 7% in the previous month.

But looking back over the past 12 months, gasoline didn’t make the list of top costs at 1.5%. (Benchmark inflation for all items was 6.4%.)

Meanwhile, heating oil fell 1.2% in January but is up 27.7% over the trailing 12 months.

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

The national average for gasoline per gallon is $3.42, AAA reported Thursday, up a cent from the previous week. The highest average price recorded was $5.02 in June.

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Gas prices “went up in January and that was mainly due to the weather,” said Andrew Gross, spokesman for AAA. Winter storms hit refineries on the Gulf Coast and in California. Separately, an all-weather fire at a Colorado refinery is also causing problems.

According to Gross, oil prices also affect about 60% of what consumers pay at the pump.

The rise in gas prices in January is an example of how slowing inflation — or disinflation — won’t necessarily happen “in a straight line,” according to Brett House, a professor of economics at Columbia Business School.

“They have the potential for exogenous shocks or economic shocks that come out of the blue and have no economic underpinning … knock prices down for significant changes in any given month,” House said.

Other transportation costs are in flux

New vehicles are up 5.8% over the 12 months ended January 30, and 0.2% for the month.

However, used cars and trucks, a category that has surged amid record-high inflation, are down 11.6% over the past 12 months and 1.9% in January.

Other transportation categories that have increased over the past 12 months include air fares, which are up 25.6%; auto repairs, up 23.1%; public transport including air fares by 17.1%; and auto insurance by 14.7%.

Auto insurance has increased as insurance companies reprice policies to reflect higher parts prices, noted Nikolai Roussanov, finance professor at the University of Pennsylvania’s Wharton School.

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

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However, based on data for the month of January, there were some signs that higher prices in certain categories could be abating. Air fares fell by a seasonally adjusted 2.1% over the month. However, out-of-home accommodation, including hotels and motels, rose 1.5%.

Persistently high inflation in services may further drive up certain travel expenses, House said.

Strong demand for travel after Covid-19 restrictions were lifted has also had an impact on prices, House noted.

“People don’t spend as much on goods or stress as we’ve seen before,” House said. “People invest in experiences, get out, go into culture, travel.”