Used car prices steer toward Fed Chairman Powell’s inflation hunch
Wholesale used car prices slipped 1.3% in June
Former Dallas Fed Danielle DiMartino Booth and The Americas at Natixis Chief Economist Joseph Lavorgna discuss the newly released Fed minutes and inflation fears.
Used car prices are muscling their way onto the watchlists of some of the nation’s most sophisticated economic forecasters, most notably, the Federal Reserve.
New data released Friday showed wholesale used car prices posted their first monthly decline in June, falling 1.3%, according to auto auctioneer Manheim. The decline, which came as record-high prices and tight inventories resulted in an 11% year-over-year drop in sales, is a sign the Fed's view that inflation is transitory could be on the mark. Prices were still up 27% from a year prior.
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Retail prices typically lag what dealers pay by one or two months, meaning consumers are likely to see relief later this summer.
"The second quarter was certainly one for the vehicle market record books," said Jonathan Smoke, chief economist at Cox Automotive Co., the parent company of Manheim. "But we’re already transitioning to yet another chapter in this saga, what we can tentatively call a post-peak demand period."
Used car prices have soared this year as a global chip shortage has boosted demand for pre-owned vehicles.
Prices have also been elevated due to pent-up demand coming out of the pandemic with many consumers having more cash to spend due to government stimulus measures.
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Additionally, rental car companies, which are typically sellers of used vehicles, recently became buyers, having to restock their fleets after selling them off to raise cash in order to survive through the pandemic.
The conditions created a "perfect storm of very strong demand and limited supply," according to Federal Reserve Chairman Jerome Powell.
A 7.3% month-over-month rise in used vehicle prices in May accounted for one-third of the total increase in core inflation. Used vehicle prices surged 10% in April. The jump in used car prices was instrumental in consumer prices increasing by the most in nearly two decades.
There is some evidence that supply is starting to come onto the new car market, which will help alleviate demand for used vehicles and allow prices to retreat further from record levels.
New car inventory as of June 20 was down 65% compared to 2019 with the number of days’ supply down similarly, according to Smoke. However, the number of days’ supply increased slightly week over week.
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The new car market earlier this week received good news from Ford, which said it has replenished its chip supply and will be able to finish the production of thousands of F-150 pickup trucks that had been put on hold.
All of this suggests Federal Reserve Chairman Jerome Powell’s prediction that prices would "reverse over time" may come true. Although even Powell admits that the timing is "uncertain."
Fox News’ Gary Gastelu contributed to this report.