Well, it seems like we’re in for another wild ride – used car prices are unexpectedly jumping higher, yet again. Yes, that’s right folks, the Manheim Used Vehicle Value Index, which tracks wholesale auction prices for used cars, rose 2.5 percent in January, marking the second consecutive month of price increase. And of course, this is fueling fears of inflationary pressures rising again.
But wait, there’s more! According to Manheim, the decline in the wholesale index last year foreshadowed a decline in used car prices measured by the Consumer Price Index months later. And now, Manheim estimates that used retail sales increased 16 percent in January from December and that used retail sales were up 5 percent year over year. So, the used car market is clearly thriving, and we’re all just along for the ride.
Let’s talk about why used car prices are sometimes a leading indicator for inflation. It’s simple really, used-car prices are highly flexible and responsive to market conditions, unlike other prices which take longer to adjust to changes in demand. And when inflation is rising, it can show up first in the used car market.
But wait, there’s more! Used-car prices account for about 4.5 percent of the core Consumer Price Index, which excludes food and fuel prices. So, when used car prices rise, it can push up the overall measure of inflation. In 2021, a sharp rise in used car prices was a leading indicator of more widespread inflation.
Despite the recent increases in December and January, used car prices remain lower than they were a year ago. The Manheim Used Vehicle Value Index is down 12.8 percent compared with January of 2022. But, who needs facts and statistics when you can just feel the fear of inflation rising again?