Used Car Prices Push Higher in Sign of Inflation Stuck in High Gear

Used Car Prices Push Higher in Sign of Inflation Stuck in High Gear
Used car on a lot in Wexford, Pa., on Sept. 29, 2022. Gene J. Puskar/AP Photo
Bryan Jung
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American used car prices climbed even higher as inflation continues to rise, according to a recent report.

It appears unlikely that car buyers will get good bargains for used cars or trucks this spring, with wholesale used vehicle prices surging for a third consecutive month in a row in February.

Cox Automotive’s Mannheim Used Vehicle Value Index reported on March 7 that wholesale used vehicle prices increased 4.3 percent in February from January.

This was the largest increase during that period since 2009, during the Great Recession, when it rose 4.4 percent.

The Used Vehicle Value Index tracks prices of used vehicles sold at wholesale auctions in the United States.

Although used car prices were down 7 percent from their historic high last in 2022, they are currently heading back toward record levels, according to Cox.

The non-adjusted price change last month increased by 3.7 percent from January, moving the unadjusted average price down 5.6 percent year over year.

Cox estimated that used vehicle sales declined 5 percent from January to February and were down 9 percent from a year earlier.

Retail prices for consumers normally follow changes in wholesale prices.

The average listed price of a used vehicle was $26,510 in January, down from record highs last year of more than $28,000, reported Cox.

Used Car Prices a Sign That Interest Rates Will Increase

The rapid increase in prices at this time is bad for the U.S. economy and for the Biden administration, as the sector is used as a barometer for inflation rate decisions by the Federal Reserve.

Meanwhile, Fed Chairman Jerome Powell spoke to Congress on March 7 and warned that the central bank may raise interest rates higher than his colleagues expected to, after new data showed that inflation may be increasing.

He warned of tighter monetary policy over the next few months to slow the economy.

Core price rises had previously slowed down in the fourth quarter of 2022, allowing policymakers to ease the increase in the borrowing rate.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” said Powell.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Current market pricing moved higher following Powell’s remarks, to a range of 5.5 to 5.75 percent, according to CME Group data, but the Fed Chief did not specify how high rates would ultimately go.

Higher interest rates will mean that vehicles will continue to become less affordable for consumers, who have been facing record-high prices for new and used cars and trucks in the past several years.

Vehicle Shortage a Key Issue in Pricing

Used vehicle prices have surged since the start of the coronavirus pandemic, which caused an international labor shortage and supply chain issues.

This led to a drop in production of new vehicles, while higher energy prices have worsened the manufacturing situation, leading to a low supply of new vehicles amid high demand.

The shortage of new vehicles and the resulting higher costs have pushed consumers into the used vehicle market, raising prices in that sector as a result, despite low inventories.

“Used car prices will likely go higher than anyone expects. Here’s why: Dealers are currently selling more cars than they’re buying. They can’t replace their inventory because there isn’t enough supply in the market,” said CarDealershipGuy in a tweet.
The Conference Board Consumer Confidence Index declined 2.9 percent in February, as future expectations fell by 8.3 percent, despite a rise in short-term outlook.

Plans to purchase a vehicle in the next six months fell to the lowest level since November 2021.

At the same time, the number of car owners unable to make their monthly payments has risen, while other Americans may lose their cars if the economy goes into recession.

Used car auto loan interest rates have risen to the highest level in more than a decade.

Some analysts say that the rise in consumer prices within the durable goods economy is not being driven by excess consumer demand, but by worldwide energy shortages, which have made production more expensive.

Bryan Jung
Bryan Jung
Author
Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.
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