Used car prices are heading towards Fed Powell Chairman’s inflationary intuition

Used car prices are making their way onto the watch lists of some of the country’s most sophisticated economic forecasters, most notably the Federal Reserve.

New data released on Friday showed wholesale used car prices registered their first monthly decline in June, down 1.3%, according to auto auctioneer Manheim. The drop, which came as record prices and tight inventories drove sales down 11% year-over-year, is a sign that the Fed’s view that inflation is transient. could be justified. Prices were still up 27% from the previous year.

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Retail prices are typically lower than what dealerships pay a month or two, meaning consumers should see relief later this summer.

“The second quarter was certainly one of the vehicle market records,” said Jonathan Smoke, chief economist at Cox Automotive Co., Manheim’s parent company. “But we’re already moving into another chapter in this saga, which we can tentatively call a post-peak demand period.”

Used car prices have skyrocketed this year as a global chip shortage has boosted demand for used vehicles.

Prices have also been high due to pent-up demand resulting from the pandemic, with many consumers having more money to spend due to the government’s stimulus measures.

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Additionally, car rental companies, which are usually sellers of used vehicles, have recently become buyers, having to restock their fleets after selling them to raise funds in order to survive the pandemic.

The conditions created a “perfect storm of very high demand and limited supply,” according to Federal Reserve Chairman Jerome Powell.

A 7.3% month-over-month increase in used vehicle prices in May accounted for a third of the total increase in core inflation. Used vehicle prices jumped 10% in April. Rising used car prices contributed to the highest consumer price hike in nearly two decades.

There is evidence that supply is starting to enter the new car market, which will help dampen the demand for used vehicles and allow prices to fall further from record levels.

The stock of new cars as of June 20 was down 65% from 2019, as the number of supply days fell similarly, according to Smoke. However, the number of days of supply increased slightly from week to week.

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Earlier this week, the new car market received good news from Ford, which said it had replenished its supply of chips and was able to complete production of the thousands of F-150 pickups that had been suspended.

All of this suggests that Federal Reserve Chairman Jerome Powell’s prediction that prices “reverse over time” may come true. Although even Powell admits the timing is “uncertain”.

Gary Gastelu of Fox News contributed to this report.