Cost of Driving Drives Cost of Living Increases
Earlier this week, the Bureau of Labor Statistics announced that inflation, as measured in their Consumer Price Index, was 7.0 percent from December 2020 to December 2021, the highest one-year jump in 39 years.
A closer look reveals that most of the increase revolves around costs related to the automobile.
CPI is the cost of a “basket of goods” purchased by the typical household, with each category of purchase weighted. 21.5 percent of the total index is taken up by food and energy, which are usually more volatile than the rest of the index. Spending on motor fuel is one-fifth of the entire food and energy category, and the cost of motor fuel was up by 49.5 percent in December 2021 over December 2020, which is a big part of the food and energy increase. (But the two-year average, December 2021 minus December 2019 divided by 2, is only a 13.3 percent increase.)
Because food and energy are so volatile, economists usually focus on “core” inflation, excluding those categories. But the automobile looms large over this category (the remaining 78.5 percent of all expenditures) as well. New cars and trucks are 3.9 percent of the entire index, used cars and trucks are 3.4 percent, motor vehicle maintenance and repair is 1.1 percent and motor vehicle insurance 1.6 percent of the entire index.
Added together, automobiles and their related expenses (excluding fuel) are 9.9 percent of the entire CPI index, or 12.7 percent of the entire “core” CPI, so the gigantic increase in used car prices and the more modest increase in new car prices loom large there as well.
When you combine motor fuel (on the non-core side) with all of the motor vehicle costs that are on the core side, the purchase, care and feeding of cars and trucks total 14.1 percent of all consumer expenditures. Multiplied by their weighting and added together, auto-related costs in December 2021 were 23.0 percent higher than in December 2021, and 9.2 percent above December 2019.
|Weighted||Unadjusted CPI-U Raw Indices|
|Total CPI||2019||2020||2021||Increase||Increase||Ann. Avg.|
|Dairy and related products||0.75%||221.924||231.740||235.442||+1.6%||+6.1%||+3.0%|
|All items, less food and energy||78.47%||264.935||269.226||283.908||+5.5%||+7.2%||+3.6%|
|Used cars and trucks||3.42%||137.125||150.891||207.164||+37.3%||+51.1%||+25.5%|
|Motor vehicle maintenance/repair||1.08%||299.614||309.888||324.688||+4.8%||+8.4%||+4.2%|
|Motor vehicle insurance||1.56%||572.979||545.376||567.875||+4.1%||-0.9%||-0.4%|
|All auto-related categories||14.06%||3201.407||3082.840||3791.686||+23.0%||+18.4%||+9.2%|