Volatile Used Vehicle Prices

According to recent data, used car inflation is back but not a reason to worry. Here’s what the stats tell us:

•  The rebound in wholesale prices had hinted at the return of used car inflation, and this month's CPI (Consumer Price Index) report confirms it.

• Prices for used cars and trucks increased by 4.4% this month, marking the first monthly increase in 10 months. 

• Short-term bumps in used car prices will not stop the longer-term price declines as supply improves, but they will make the path of used car disinflation longer and rougher than previously expected.

The good news:

• Preliminary data from the Manheim index suggests that the recent price rebound may already be behind us, with a 0.9% unadjusted price decline in the first half of May.

• Dealership inventories, though historically low, are gradually improving and vehicle sales have almost reached pre-pandemic levels.

• The stresses in global car supply chains like chip shortages are gradually abating, and the Federal Reserve's rate hikes are constraining auto loan credit, which will help mitigate the inflationary impact of short-term price increases.

• Strong demand, especially during tax return season, has also contributed to the rebound in prices.