Rising used car prices could lead to global inflation that would skyrocket

Used car prices soared 17% in the last 17 months, The Washington Post reports—More than any other commodity on the market. And it could very well indicate that inflation could weaken the economy.

Much of the issue in the automotive sector has come from the fact that the automotive industry was massively disrupted as a result of the COVID-19 pandemic. No cars came in and no one was buying used cars. Thus, used vehicle companies began to raise their prices as a way to bolster the few sales they made. And when people got their incentive money and tax refund checks, demand jumped beyond the capacity that many lots had.

With the entry into force of the Biden administration’s new stimulus bill, economists have worried that this extra money will “over-stimulate” the economy. Now, I know a lot of people will call shit on this: the United States still is with high levels of unemploymentt, so people generally theorize that 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 information about the article:

Since the pandemic began, used cars and trucks have experienced the fastest price growth of almost any category of consumer goods, according to data of the Burebird of Economic Analysis. The only categories competing for them are major appliances and “flowers, seeds and potted plants,” which have seen prices rise by more than 10% between February 2020 and this January.

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Business owners like it [Michael] Darrow says there’s not much room to raise retail prices beyond what they’re paying at auction. The supply chain for new vehicles has been limited by factory shutdowns and continued precautions to protect workers. And this, in turn, is squeezing the used car market, which is heavily dependent on changes and spare parts for auto parts. The global shortage of microchips is still increasing supply chains.

All in all, it is more expensive for dealers to repair and get their models, in addition to the added cost of staying open in a pandemic.

Darrow doesn’t believe the price increases they see can be sustained for long. Buyers knoww the value of a car, Darrow said. It is sometimes questioned how long dealers will be able to pass on higher prices for cars and trucks before their customers leave.

Basically, economists are concerned that used vehicle inflation may signal a rapid rise in inflation in general, where inflation costs all it can jump up to 10 percent. The federal government aims to keep inflation up to a maximum of two percent a year and has fallen steadily short, but the 17 percent jump seen in the used car market is honestly quite distressing.