Used car prices have soared 17 percent in the past 17 months, The Washington Post reports—More than any other commodity on the market. And it may well signal that inflation can weaken the economy.
A large part of the automotive sector’s problem came from the fact that the auto industry underwent a massive turnaround as a result of the COVID-19 pandemic. Cars were not arriving and no one was buying used cars. Thus, the used car companies started to raise their prices as a way to increase the few sales they were making. And when people received their stimulus money and tax refund checks, demand jumped beyond the capacity that many lots had.
With the Biden government’s new stimulus bill coming into effect, economists fear that this extra money will “over-stimulate” the economy. Now, I know that a lot of people are going to draw attention to this – the United States is still suffering from high levels of unemployedt, so people generally theorize that the stimulus money will go to the essentials. But economists think they can use the history of the used car market to predict trends.
Here is more of the article:
Since the start of the pandemic, used cars and trucks have experienced the fastest price growth of almost all categories of consumer goods, according to Dice of Bureau of Economic Analysis. The only categories that rival them are the main home appliances and “flowers, seeds and plant pots”, both of which saw prices rise by more than 10 percent between February 2020 and January this year.
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Business owners like [Michael] Darrow says there is not much room to raise retail prices beyond what they are paying at the auction. The supply chain for new cars has been constrained by factory closures and ongoing precautions to keep workers safe. And this, in turn, is squeezing the used car market, which depends a lot on exchanges and auto parts. The global shortage of microchips is further disrupting supply chains.
Altogether, it is more expensive for dealers to repair and purchase their models, in addition to the additional cost of staying open in a pandemic.
Darrow does not think that the price increases he is seeing can be sustained for long. Buyers knoww is the value of a car, said Darrow. Sometimes he wonders how long dealers will be able to pass on higher prices for cars and trucks before their customers leave.
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Basically, economists are concerned that used car inflation may signal a rapid rise in inflation across the board, where everything can jump up to 10%. The federal government intends to keep inflation low to no more than 2% a year and has fallen short – but the 17% jump seen in the used car market is, honestly, quite distressing.