Stephen Juneau, an economist at Bank of America Securities, pointed out that rising auto insurance premiums have been a significant factor driving inflation in the past few months. In April this year, motor vehicle insurance increased by 22 per cent compared with the same period last yearbingoquest.6%, the largest increase since 1979.

He said in a recent report,"This has a negative impact on core CPI inflation.bingoquestWith an increasing boost, the core CPI growth in April was still as high as 3.6% year-on-year." Although the rise in motor vehicle insurance costs is not a recent trend, it has played a greater role in driving up CPI core services (excluding rent and owner equivalent rent, also known as super core services).

Of the 4.9% year-on-year growth in super core services CPI, auto insurance contributed 2.3 percentage points, while all other components contributed 2.6 percentage points.

"The sharp rise in auto insurance premiums is a response to losses in the insurance industry," Juneau said. Factors contributing to these losses include higher vehicle prices (both new and used vehicles), increased technical and labor maintenance costs, and an increase in the number of accidents that occur as driving patterns return to normal.

Recall that supply chain disruptions caused by the COVID-19 epidemic caused car prices to soar, even though at the height of the epidemic, Americans cut back on driving because of the cessation of telecommuting and most leisure travel.

The good news is that growth in motor vehicle insurance premiums seems to have slowed. "There are signs that many insurance companies are returning to profitability," Juneau said. "In addition, car prices have recouped some of their previous increases and wage growth in the industry has cooled. That doesn't mean your premiums will fall, but we think growth should slow down."

The next major data point for the Fed's measure of inflation is personal consumption expenditure data in its personal income and expenditure report due this Friday. Among this indicator, auto insurance grew little, which partly explains the gap between the CPI in March and PCE's super-core service inflation rate-CPI was +4.8% and PCE was +3.5%, but both were significantly higher than the pre-epidemic 2.0%.

Juneau said,"We believe that further improvements in this area are one of the keys for the Fed to become more confident in the anti-inflation process and begin the interest-rate cycle. Until then, we expect the Fed to keep interest rates unchanged."

Data from TD Economics shows that core personal consumption spending, which excludes volatile food and energy categories, is expected to grow 2.8% year-on-year in April, the same increase as in March.