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The average price of used cars and trucks in the U.S. leaped 10 percent from March to April and is up 21 percent over the past 12 months, according to the Financial Times. This has become a central engine of the country’s accelerating pace of inflation.
“Prices are unquestionably higher than they’ve ever been and have unquestionably moved more quickly than I believe they ever have,” Carvana founder Ernie Garcia told the FT.
Consumers are flush with cash but supplies of new vehicles have run short, due in large measure to the global shortage of computer chips.
Also, the number of repossessed cars has shrunk, robbing dealers of another usually reliable source of good-quality cars and trucks.
As a result, would-be new-car shoppers have been driven into the used-car market, pushing up prices for desirable vehicles.
In addition, car rental corporations sold off their vehicles last year when the travel economy crashed; now those companies are competing for available cars to rebuild their fleets.
U.S. Treasury and Federal Reserve officials continue to insist that such price surges are temporary while the economy rights itself.
The pressures pushing used-car prices up “may persist over the summer,” U.S. Federal Reserve governor Lael Brainard said in comments quoted by the FT. However, Brainard said, “I expect them to fade and likely reverse somewhat in subsequent quarters.”
“Several leading indicators of what’s happening at [used car] auctions” indicate “the price appreciation streak is likely going to end,” Jonathan Smoke at consulting firm Cox Automotive told the FT.
Still, carmakers “have to build the new cars and get the chips in them and get them out,” Maryland car dealer Carey Cherner told the FT.
“I don’t see a steep drop-off [in prices] until there’s way more supply than demand,” he said.
TREND FORECAST: To us, the Feds keep pumping the “temporary” inflation lines, knowing that if they said rates will rise, markets and the economy will dive.
As we have detailed, the levels of monetary methadone injected into equities and the economy are unprecedented in modern history, and the U.S. debt-to-GDP ratio is at World War II highs. Thus, any cheap money pullbacks will drive the artificially propped up markets sharply down… as well as the general economy.
Yes, prices in many sectors will decline, yet, as we have detailed, commodities such as oil, which relies on both industrial and consumer consumption, will continue to rise… pushing up inflation.