A new report on rising used car prices suggests that inflation could be headed in the wrong direction if prices continue to increase.
Key Details
- The car market tightened in 2022 due to supply-chain issues, diminishing stock of used cars, and an increasing Consumer Price Index (CPI)—the leading measure of consumer inflation.
- Used-car information provider Manheim released its January used vehicle value index on Wednesday, showing a 2.5% price increase between December and January, Barron’s reports.
- Despite a 15% drop in prices over the course of the year, prices have begun increasing for the second consecutive month.
- Car prices have dropped significantly in the past six months, but that appears to be coming to an end—and with it comes a warning for inflation, as used cars make up 4.5% of the CPI.
Why It’s Important
January’s CPI will be released Tuesday, February 14, and is expected to set the economy’s direction for the coming months as the Fed’s interest rates and federal spending continue to have contentious effects. A significant rise in the price of used cars could see the CPI increase steadily again from 6.5% in December. Last year’s peak was 9.1% in June.
“The market thinks inflation is at its peak. Used-car prices picking up steam is heading in the wrong direction,” says Inflation Insights president Omair Sharif
As Hertz CEO Stephen Scherr tells Bloomberg, the prices of used cars sold from Hertz’s fleet have increased well above the average price they tend to charge on the market, and that’s just in the past four to five weeks. “The snap back over the last four weeks has been more pronounced. There is clear stability and more of an uptick.”
The Problem
The worst affected in the meantime are buyers who have to wait longer for an affordable used car, Bloomberg notes. The overall trend of car prices since the beginning of the pandemic is beginning to push car prices out of the range of affordability for many middle-class families.
“My concern is that if supply doesn’t return, then new cars will be priced out of the reach of middle-class households,” Garvey Group dealer principal JP Garvey tells The Wall Street Journal.