Car insurance rates and clothing prices affect inflation

These consumer prices are having a direct impact on the rate of inflation, say economists and analysts.

According to recently released American economic data, car insurance rates and clothing prices are impacting the rate of inflation. Not including energy and food, U.S. consumer prices increased by 0.3 percent in January. Food and energy were left out due to their volatility.

That most recent price jump represented the fastest monthly increased experienced in a year.

The consumer price spike will likely only worsen concerns regarding the financial markets. According to the Labor Department, overall consumer prices actually increased by 0.5 percent last month. That is the highest overall price hike (including energy and food) seen in four months. Prices rose by 2.1 percent year over year in January. Core prices shot up by 1.8 percent.

According to economists, the price inflation was driven by higher car insurance rates and more expensive clothing costs.

Though neither car insurance rates nor clothing costs are expected to lose control, it has rattled nerves.

Both the cost of auto insurance and the price of clothing are areas that are essentially controlled. Their prices are not expected to do anything wild. That said, their impact on inflation so far has been enough to make investors feel nervous.

The reason is that analysts are speculating on whether or not the rapid price increases currently occurring – and greatly driven by clothing costs and auto policy premiums – will drive the Federal Reserve to boost short term interest rates more rapidly than previously predicted.

Should interest rates rise, it makes it more difficult for businesses and individual consumers to be able to both borrow and spend money. This could slow economic growth.

Immediately following the release of the Labor Department’s report, stock futures dropped. At the same time, bond yields stepped upward. Dow Jones industrial average futures initially dropped by approximately 250 points.

In January, clothing prices rose by 1.7 percent after having declined for several months. In fact, that was the biggest rise the industry had seen since 1990. On the other hand, car insurance rates rose by 1.3 percent that month. Together, they shoved overall consumer price figures upward.

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