Crazy used cars! Soaring prices are adding to global inflationary pressures


Used car prices in the U.S. have risen 21% over the past year, which was the biggest driver of the April inflationary explosion in the U.S. Outside of the U.S., used car prices are soaring worldwide. Global used car prices are rising rapidly over the past few months. This is also of particular concern to policymakers because of the large impact of used car prices on inflation data.

Some analysts say that used car prices are soaring mainly because of the slowdown in new car production due to work stoppages and semiconductor shortages. At the same time, people tend to take private cars under the epidemic also stimulated the demand for cars, while the U.S. sky-high fiscal policy and bailout money also added fuel to this market.

The world is rising
Data show that in April, the U.S. used car and truck prices rose 10% from a year earlier and 21% from a year earlier, becoming one of the main drivers of a 4.2% year-over-year increase in the U.S. CPI and a 3% year-over-year increase in the core CPI (excluding volatile food and energy prices).

This increase accounted for more than a superb one-third of the overall increase in inflation and was the largest price increase since the U.S. government began tracking the data in 1953.

In addition, according to Cap Hpi, U.S. used car prices will rise by 6.7% in May.

Outside of the U.S., used car prices are soaring worldwide.

In Germany, used car prices reached an all-time high in April. According to AutoScout24, a car sales website, the average price of a used car reached €22,424, €800 more expensive than at the beginning of 2021. at the same time last year, the price was €20,858.

In the UK, a year-old Audi A3 is £1,300 more expensive than it was a year ago, a 7 percent price increase, while the Mazda MX5 has gone up by more than 50 percent. Marshall Motors chief executive Daksh Gupta said he had only seen this happen twice in 28 years.

And visits to Autotrader, an online used-car trading platform, are up 30 percent from before the outbreak.

Policymakers keeping a close eye on used car prices

U.S. government officials are now keeping a close eye on used car prices as an indicator of the future path of inflation. If goods represented by used cars rise too quickly, the U.S. could face a prolonged overheating of the economy for the first time in decades, which also poses a major challenge to economic policymakers such as the Federal Reserve and Biden.

Goldman Sachs forecasts that core inflation will peak at 3.6 percent in June this year, fall slightly to 3.5 percent by the end of the year, and average 2.7 percent in 2022.

Nonetheless, policymakers insist that inflationary pressures are easing and that the broader inflationary trend is only temporary. In a speech on Tuesday, Fed Governor Lael Brainard said pressure on the used car market should ease later in the year.

Where are prices headed? Market still divided

Ernie Garcia, founder of Carvana, an online used car sales platform, said there is no doubt that used car prices are now higher than ever and prices are moving faster than he thought they would.

Laura Rosner, senior economist at Macro Policy Perspectives, said it’s a “perfect storm,” and that’s evident in the prices of used cars.

Jonathan Smoke of Cox Automotive, a car dealership consulting firm, noted that several leading indicators reflecting auction conditions suggest that the upward price momentum may be coming to an end.

We must lower our expectations for inflation, said Lynda Schweitzer, co-head of global fixed income at Loomis Sayles.

–from Yu Xudong’s Wall Street Journal

Post time: Nov-04-2021