“Some kind of crazy.” How is the US used car market boosting inflation?

Last month in Kensington, Maryland, 36-year-old used car dealer Kerry Cherner took less than 12 hours to sell a 2001 Ford F-150 pickup truck clocked at 184,000 miles. It went for $ 7,500, 50 percent higher than usual.

The experience of dogs is not a one-time experience in the US used car market, where prices are rising rapidly. Industry is at the root of the country’s growing inflationary pressures, and has since become a major concern for policymakers in Washington.

“There are more people buying cars in the market than there are cars, which makes him kind of crazy,” Cherner said.

Unusually, officials are closely monitoring the prices of used cars as an indicator of future inflation. If price increases take root and spread to other parts of the economy, America could, for the first time in decades, experience prolonged overheating. posing a great challenge For Biden economic policy makers in the US Federal Reserve.

The price of used cars և trucks rose by 10% in April, up 21% from the previous year, making it one of the main engines. 4.2 percent year-on-year wave in the US Bureau of Labor Statistics Consumer Price Index. Major inflation, excluding volatile food and energy prices, has reached 3%.

Ernie Garcia, the founder of the Carvana online car sales platform, said: “Prices are definitely higher than they have ever been, they have definitely moved faster than I think they have ever moved.”

Inflation. A new era?

In many large economies, prices are rising. FT is investigating whether inflation has finally returned.

DAY 1. Progressive economies have not faced rapidly rising inflation for decades. Will that change?

DAY 2. Global consensus among central bankers on how best to boost low, stable inflation was destroyed,

DAY 3. US Coal Mine for US Inflation. Used cars.

DAY 4. How can the virus disrupt official inflation statistics?

DAY 5. Why are rising prices in advanced economies a problem for developing debt countries?

Policymakers argue that the pressure will gradually ease, reinforcing their view that the higher inflation trend will be largely transient. In a speech on Tuesday, Fed Governor Lael Brennard said that while used car cost pressures “may persist during the summer months, I expect them to ease” and will likely return somewhat in the coming quarters.

But while many economists agree that inflationary pressures are likely to be temporary, they also acknowledge that the uncertainty over the economic outlook is enormous. As the epidemic recedes across America, consumers are greatly saving on savings և government payments, while supply chains are strained by congestion.

“We see a level of stimulus that is unprecedented in the last 50 years, plus other forms of cost support. “These are really unaccounted for waters. We have to be modest.” “How convinced am I that inflation is going to disperse?” Probably 80 percent, but it’s still a pretty fat tail. “

US Federal Reserve Governor Lael Brainard says used car market pressure should ease by the end of this year © Taylor Glascock / Bloomberg

The increase in prices is due to the slowdown in the production of new cars due to the lack of blocking and semiconductors.

In addition, in the face of an unusual downturn, the number of customers who defaulted on vehicle financing and withdrew their car was cut off, interrupting another source of dealer supply, such as the Cherries.

Meanwhile, the demand increased. Americans prefer public transportation due to the epidemic. Incentives have helped them spend. And car rental companies that sold their rented cars last year due to travel collapse are now trying to rebuild them with used cars.

“It is incredibly narrow now. You have more demand. It provides fiscal incentives, so it’s like a perfect storm. And we obviously see that in prices, ”said Laura Rozner, senior economist at MacroPolicy Perspectives.

But Cox Automotive’s Jonathan Smok, a sales consultant, said that “some of the leading indicators of what happened at our auctions” indicate that “the price range is likely to end.”

US used cars և trucks up 10% in April © Just Astin Sullivan / Getty

That leaves economists պաշտոն US officials with an idea of ​​how long it will take for prices to rise above the Fed’s average of 2 percent.

Goldman Sachs forecasts that core inflation will reach 3.6 percent a year in June, fall slightly to 3.5 percent by the end of the year, and average 2.7 percent in 2022.

Fed officials are not only looking at core inflation, but also other measures to raise prices.

The Consumer Price Index chart (selected sub-indices, April,% annual change) showing What drives US inflation.

The Consumer Price Index, traditionally the Fed’s preferred rate, rose 3.1 percent in April, while the Dallas Fed’s average PCE cut a more modest 1.8 percent.

The US Federal Reserve has also developed a quarterly index of general inflation expectations to assess whether they are far from their targets. Its next reading will take place in July. Despite these efforts, the uncertainty shocked some economists and investors.

“Overall, our mainstream inflation has not changed, but we need to be less confident about that,” said Linda Schweizer, co-chair of the Global Fixed Income Global Team. “We have to take into account the risks of something more sustainable.”

And in Maryland, Cherner is optimistic about the outlook.

“I do not see a sharp decline [in prices] “As long as there is no more supply than there is demand,” he said. “They still have to build new cars, bring in chips and take them out. I just think it’s going to happen. ”

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