Today I came across an interesting article from the world and would like to discuss it. Personally, I am not an economist, but there are certainly many of us like that here, and thanks to investments, we are learning a bit of economics. Now the Fed chairman has come out with the idea that the current inflation rate may be due to skyrocketing insurance costs.

Several types of insurance, including home and auto insurance, have risen sharply over the past few years and are hurting the Fed's efforts to lower interest rates to its 2% target, Powell told Congress last week. "Insurance of various kinds - home insurance, but also auto insurance and the like - that has been a significant source of inflation over the last several years".

On Tuesday, data from the Bureau of Labor Statistics showed that auto insurance, which covers physical damage, liability and miscellaneous personal auto coverage, has increased 20.6% over the past year and was up 0.9% in February compared to a month ago. Meanwhile, a study from S&P Global Market Intelligence found that homeowners insurance jumped 11.3% in 2023.

According to experts, factors such as climate change and rising auto parts prices are the reasons for the increase in insurance.

More frequent extreme weather caused by climate change is leading to higher risk for insurers, leading them to raise prices, according to the Bankrate study. Over the past decade, the U.S. has seen a record $1.1 trillion in damages from severe weather, the most on record, which has contributed to higher insurance costs.

Insurers pay reinsurers to help them avoid insolvency, reinsurers charge insurers more for their services and insurers charge customers more to do so.

"In the long run, companies in some coastal areas are backing away from underwriting insurance," Powell said, adding: "It's a significant problem."

Auto insurance rates are at a nearly 50-year high, and several factors are to blame, including extreme weather and crime, but also the cars themselves, said Fortune's Mark Hamrick, chief economic analyst Bankrate.

"The path that has brought us to this point involves the skyrocketing price of new cars and their complexity, which makes repairs more difficult and expensive," Hamrick said in an email.

How do you feel about that statement. Can insurance really have an effect on inflation? Personally, this is the first time I've heard this idea, but it could be because I haven't studied economics. So I'm interested in your views. 😊