The Used-Car Indicator

The prices of used cars started spiking nearly two years ago. That was a harbinger of things to come. So can falling used-car prices now mean the reverse -- that inflation is ready to fall? 

That's the question I had when I looked at the CPI report this morning and saw that used cars were one of the only categories posting a month-over-month price decline. Used cars and trucks are still up 22.7% from a year ago, but they fell 0.4% in April. It's actually the third consecutive month of CPI declines for the used-car category. No other part of the CPI has even posted two straight declines, so it's fair to call used cars an outlier at the moment. 

My colleague Angela Palumbo reached out to economists today to see just how important the user-car indicator might be when it comes to the future of inflation: 

According to Mark Zandi, chief economist at Moody’s Analytics, the decline in used-car prices shows that the continuing supply-chain issues heating up inflation are starting to subside. In his view, car prices surged because of issues like chip shortages and supply-chain problems, and the fact that they are falling now is an indication that supply chains, though still not where they should be, are starting to improve. If that’s the case, prices could start falling for other products as well.

“I think the used vehicle price decline is the first real indication that goods price inflation is about ready to roll over,” Zandi says.

That's the good news, but there's a to-be-sure. Marketfield Asset Management CEO Michael Shaoul said that used cars aren't a big enough part of the index to really matter -- at least when it comes to the actual CPI number. “It isn’t going to move the needle, and it’s not going to give you any insight into food prices, energy prices, and the really important stuff, which is 40% to 50% of the CPI basket and is certainly trending higher,” Shaoul said.

Used cars are now just one more part of a heated inflation debate. Read the rest of Angela's story here.