A surge in surge pricing

Here are three of the week's top pieces of financial insight, gathered from around the web: 

Epic auto insurance inflation

Car insurance rates haven’t risen this much since 1976, said Elisabeth Buchwald at CNN. The cost of insuring a vehicle rose 19% in August compared with a year ago, contributing to an uptick in overall inflation. The bump comes after auto insurers “lost an average of 12 cents for every dollar customers paid in premiums,” thanks in part to huge losses following Hurricane Ian’s destruction in southwestern Florida. Drivers in Florida are now “paying an average of $3,183 a year for full coverage policies — up 15% from 2022.” Auto insurers “price their plans based on the losses they’re incurring on a state-by-state basis.” But extreme weather has also driven up the cost of reinsurance, which gets passed on to consumers across the country.

A surge in surge pricing

Surge pricing isn’t just for Ubers and airfare anymore, said Oliver Barnes, Philip Georgiadis and Laura Onita in the Financial Times. The rise of algorithms and artificial intelligence has introduced the concept of “dynamic pricing” across a growing number of businesses — even including restaurants. “Amazon changes the price of its products on average every 10 minutes, using millions of real-time data points to benchmark against competitors and track demand surges.” Walmart has begun installing “electronic shelf labels” that allow its brick-and-mortar stores to “rapidly update prices.” In the U.K., there was nationwide furor after one of Britain’s biggest pub companies, Stonegate, recently “announced it will charge drinkers extra for a pint of beer on busy evenings and weekends.”

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A new normal for interest rates

Higher interest rates may be around for a while, said Greg Ip in The Wall Street Journal. The Federal Reserve left its benchmark funds rate unchanged last week, but it did surprise markets by signaling that its so-called neutral rate, the number it believes “keeps inflation and unemployment stable over time, has risen.” Before the financial crisis, economists thought that the neutral rate was about 4% to 4.5%, minus 2% inflation. “Estimates of neutral began to drop” during the subsequent decade as the Fed kept interest rates closer to zero. Today, most economists still place the neutral rate around 2.5%; however, “five of 18 Fed officials put it at 3% or higher” — a signal that we won’t see interest rates drop to pre-2022 levels anytime soon.

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