Dallas Cowboys running back Alfred Morris with his 1991 Mazda back in 2012. Getty Images
Prices for used cars, which are increasingly seen as an inflation barometer for investors, rose again in January after falling in December, potentially subduing hopes that the Federal Reserve is winning its fight against inflation.
January saw the largest increase in wholesale auto values since late 2021, according to new data from Cox Automotive. Cox’s Manheim Used Vehicle Value Index was up 2.5 percent in January compared with December but down 12.8 percent from inflated levels a year earlier.
Here are three things to know about rising car prices.
Nationally, used car prices were down 3 percent, or $1,043, in December compared to a year earlier, following a 2 percent annual decline in November. It was the first time used car prices had moved lower since June 2020, according to a study from iSeeCars.com.
The 2.5 percent rise in average used car prices in January combined with a strong jobs report suggests it may take longer to tame inflation than many hoped.
Car prices have risen at an unprecedented rate over the past 21 months. Demand dried up in March 2020 when states started issuing lockdown orders early in the covid pandemic, but it came roaring back as soon as the federal government started sending out stimulus checks in May, according to Charlie Chesbrough, a senior economist at Cox Automotive. Buyers wanted to be able to get away without worrying about strangers packed into their bus or subway. “Personal transportation became a priority,” Chesbrough told The Verge.
The average cost of a 1-to-5-year-old car was $33,582 in December after two years of year-over-year price increases, blamed partly on the global microchip shortage.
By comparison, the average new car price in 2023 is $48,094 according to Kelley Blue Book and the Bureau Of Labor Statistics.
Sean Hollister, an editor at The Verge, wrote on Feb. 10 about selling his 7-year-old car for more than he paid brand new. “In December 2014, I bought a Honda Fit right off the lot. It had 23 miles, and I paid $20,814.80, including accessories and an extended warranty. This December, a buzzy startup called Carvana drove away with my car, cutting me a check for $20,905 — leaving me with a profit of $90.20,” Hollister wrote.
“Spending more than $40,000 for a new car if your household earns less than $200,000 a year is unwise,” Sam Dogen wrote for the personal finance platform Financial Samurai.
The Biden administration said the price of used cars was having a historically high impact on overall headline inflation and said there’s not much it can do about it.
For 20 years, used cars contributed zero to inflation. Now it’s more than 1 percent on a year-over-year basis, according to data from the U.S. Bureau of Labor Statistics, CNBC reported in January 2022.
White House economic advisor Jared Bernstein. Bernstein, who sits on Biden’s Council of Economic Advisers, wrote that the primary supply-chain hiccup responsible for both used car inflation and its impact on the consumer price index data is a shortage of semiconductors used in the manufacturing of new cars.
A year later, not much has changed.
“The market thinks inflation is at its peak,” said Omair Sharif, founder and president of Inflation Insights LLC in a Bloomberg report. “Used-car prices picking up steam is heading in the wrong direction.”
