Where inflation is increasing the most

At the beginning of the year, the price of new and used cars increased. No one has ever heard of a 40% inflation rate for used cars, but a severe semiconductor shortage has thrown the car market into disarray. With a shortage of chips severely depressing the production of new cars, consumers with a lot of money are shopping for them. So the price skyrocketed.

With the reduction in chip shortages, car prices are coming back down to earth. The year-over-year change in new cars peaked at 13.2% in April and has now dropped to 8.4%, as the first chart below shows. Used car inflation has dropped from 41.2% in February to 2%. Rental car inflation, 39.1% a year ago, is actually negative, with prices falling 3.5% over the last 12 months.

All this is welcome evidence that some of the forces driving high inflation this year are moderating. Overall inflation peaked at 9% in June – a new 40-year high – and has dipped bit by bit to 7.7%. The market, finally, felt real progress in the fight against inflation. Stocks roared after the report for October showed a half-point decrease in the rate of inflation, in hopes that the Federal Reserve may be able to slow down its aggressive pace of interest rate hikes.

Other categories of inflation show where hot spots still exist. Energy has been another broad driver of inflation, for two reasons. Energy markets were tight, and prices were rising, before Russia invaded Ukraine. After Russia invaded, the market was tighter and prices rose even more. Nine months into the war, energy producers and consumers have adjusted and the market has stabilized. But there is an energy war between Russia and the West that is similar to a military war in Ukraine, and it is not close. New disruptions could occur in December when European bans on buying Russian oil come into force, along with US-led plans to impose higher sales prices on Russian oil.

For now, low world oil prices have kept gasoline inflation down, as shown in the second chart. Gas price inflation went from 60% in June, when pump prices hit $5 per gallon for the first time, to 17.5% in October. Household energy costs have increased slightly, from an inflation rate of 21.9% in June to 17.1% in October. When the trend is going in the right direction, no one can get excited about an important commodity rising by double digits. High energy costs are one thing that could prompt the Fed to push inflation down to its preferred target range of around 2%.

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The third chart, showing inflation in rent, groceries and transportation, appears more stable, with no wild price swings. But this chart generally represents bad news because the needs of families who spend most of their budgets have risen more than wages. The annual inflation rate is 7.5% for rent, 12.4% for food and 11.2% for transportation. Wages only grow by 4.7% per year. With the cost of necessities higher, and still there, many families fall behind.

Meanwhile, there is little deflation: There is almost no fall in prices. The decrease in the inflation rate still reflects the price increase above the previous price increase. Gas prices, for example, are currently around $3.90, which is up from around $3.50 a year earlier. in November 2021 the price rose from $2.20 a year earlier. The inflation rate from 2021 to 2022 is lower than the inflation rate from 2020 to 2021. But the net cost to consumers is still quite high. This may change in the coming months, as the slowing economy, weakening demand and steadily improving the supply chain produce year-over-year price declines. That would be a stronger sign that inflation is abating.

The fourth chart shows the cost of travel, which is worth looking at because it generally represents money that people choose to spend, but they don’t have to. Year-over-year airfare inflation is stratospheric, at 42.9%, as fuel costs drive up costs and consumers—desperate to move after the COVID shutdown—don’t mind paying. That’s good news because it shows some consumers have a lot of money to spend on nonessentials.

Hotel and car rental costs are back to normal, after a post-COVID inflationary spike. Again, rental-car inflation has disappeared. Hotel room inflation fell from 25.1% in March to 5.9% in October. It is a sign that supply issues, labor shortages and other things affecting the travel industry are increasing. Everyone wants this to happen sooner, but at least it’s happening.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman

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