How the Used Car Market is Contributing to Inflation
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The increasing prices of used cars and trucks are being blamed in part for a soaring inflation rate, according to The Economist. In fact, figures released earlier this year indicate that American consumer-price inflation hit 4.2% year-on-year in April, which is reportedly the highest rate since 2008.
In May, the annual inflation rate rose even higher, to 5%—and as The Economist reports, about one-third of May’s overall month-to-month increase came from the appreciating value of used cars.
What does this mean and why is it happening this year? Let’s take a closer look at the facts and figures.
The increasing prices of used cars are being blamed in part for a soaring inflation rate.
The increasing prices of used cars
The Bureau of Labor Statistics figures indicate that the prices of used cars and trucks have increased 30% over the past year, but many in the auto industry reportedly believe that’s an underestimate.
In fact, Manheim, the largest used-car auction business in the U.S., suggests in its latest index of second-hand values that prices have actually increased by 48% over the past year, rising by 5% just between April and May.
Pickup trucks have especially increased in sales, rising by 70% in just a year. Many people in the U.S. are reporting they are selling their used cars for a profit.
The Department of Labor also reported that car and truck rentals increased by 87.7% in one year, according to CNBC.
In addition to price increases in used cars and car rentals, other areas that have seen increased prices include public transportation (including airline fares) and hotels.
Why car prices are increasing
There are a few factors contributing to increases in used car and car rental prices.
In the summer of 2020, many Americans stayed home during the pandemic. This year, more people are venturing out of their home for the first time in months, so demand for car and rentals is increasing, meaning prices have skyrocketed, according to CNBC.
There has also been a global shortage in auto parts and components that has contributed to price increases and a soar in demand. As the economist points out, drivers have more to spend with stimulus checks from the government, and for those who don’t, car loans are cheaper than before.
Without increases in used cars, new cars, lodging and transportation services, the core consumer price index would only have increased .18% month over month, which is fairly normal, according to CNBC. It just goes to show the impact car sales and rentals are having on the economy.
Will used car prices come down soon?
CNBC also reports that according to Bank of America economists, we may currently be at the peak of used-car prices. The increase in sticker prices for consumers has now gone beyond the jump in wholesale used car prices—which did start to moderate last month.
MarketWatch points out that as the car computer chip shortage eases and car manufacturers boost production, a lot of the recent upward pressure on U.S. inflation will also go away.
But still, the costs of goods and services are on the rise. The high cost of gas, groceries and planes may still be impacting consumers and household budgets through the end of the year.