Higher mortgage rates. Higher credit rates. Higher insurance rates.

Unfortunately for consumers, this high interest-rate environment continues to linger longer than we’d like.

The latest sign that elevated rates are here to stay came yesterday in the form of remarks from Richmond Fed President Tom Barkin. Barkin said that he would like to keep interest rates “moderately restrictive” until he gains more confidence that inflation is closer to the Fed’s 2% target.

“I prefer to wait and see how this uncertainty plays out and how the economy responds,” Barkin stated.

Earlier in February, Fed Chief Jerome Powell testified before Congress, telling lawmakers that the interest rate path remains “uncertain.” Powell also reiterated the Fed’s cautious, data-dependent stance as the central bank assesses how the inflation picture evolves in the coming months.

The uncertainty is weighing on consumers. The Conference Board’s Consumer Confidence Index registered at 98.3 in February, a sharp drop from the 105 reading from January and below the 102.5 expectation from economists. It was the biggest monthly decline in four years; clearly, consumers are feeling uneasy about the future state of the economy.

The next FOMC meeting is slated for three weeks from now, and markets are pricing in just a 2.5% chance of a rate cut. While Powell has signaled that the worst of inflation is likely behind us, the path for rate cuts has been steadily pushed back amid hotter-than-expected inflation data.

Rate Cuts Delayed as Inflation Lingers

The latest Consumer Price Index (CPI) report showed headline prices increased 3% over the prior year in January, an uptick from December’s 2.9% annual gain. On a monthly basis, headline inflation rose 0.4%.

Excluding food and energy, the “core” CPI showed an annual increase of 3.3%. Core prices also rose 0.4% on a monthly basis. All figures were above forecasts and higher than in December.

Traders pared back bets on interest rate cuts this year, pricing in just one cut following the data.

Transportation is one of the components within the CPI that has remained sticky. Surging auto insurance rates are a big reason why that has been the case. From a longer-term perspective, we can see below that US auto insurance rates are up 95% over the last decade, far above the 35% increase in overall consumer prices.

Image Source: YCharts

Auto insurance rates in the US have spiked by 55% over the past 3 years, marking the biggest 3-year surge since the ‘70s. For the commuters out there, you’ve probably noticed more accidents over the years due to higher levels of traffic, which in turn raises costs to repair damaged vehicles.

We’ll get an update on the inflation front later this week in the form of the core personal consumption expenditures (PCE) index data, which serve as the Fed’s preferred inflation gauge.

Higher Car Insurance Rates Send This Stock Soaring

The biggest beneficiaries of rising insurance prices have undoubtedly been car insurance companies. The Zacks Insurance – Property and Casualty industry group contains many car insurance companies that have outperformed the market. This group currently ranks in the top 18% out of approximately 250 industries and has shown relative strength to start the year.

Targeting individual stocks contained within the top industry groups provides a constant ‘tailwind’ to our investing success. Also note the favorable valuation characteristics for this industry below:

Image Source: Zacks Investment Research

One leading company within this group is The Progressive Corporation PGR. Over the last decade, PGR stock has widely outperformed the S&P 500 with an incredible 1,226% gain. The trend has continued this year, as PGR rewards investors with an 18% return year-to-date.

Image Source: StockCharts

A Zacks Rank #2 (Buy), Progressive provides personal and commercial property and casualty insurance along with other specialty insurance services primarily in the United States. The company sells its products through independent insurance agencies as well as directly to the consumer.

The insurance provider continues to gain on higher premiums given its compelling product portfolio, leadership position and strength in its vehicle and property businesses. Revenues have steadily increased over the years, with current estimates calling for growth of 16.5% to $87.5 billion this year.

Image Source: Zacks Investment Research

Analysts covering PGR are expecting solid earnings numbers and have bumped up full-year EPS estimates by 5.79% in the past 60 days. The 2025 Zacks Consensus Estimate stands at $14.79 per share, reflecting a 5.3% growth rate relative to last year.

Image Source: Zacks Investment Research

Keep an eye on this insurance giant as the company looks primed to continue its outperformance.

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This article originally published on Zacks Investment Research (zacks.com).

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