The Used Car Market is Signaling Higher Inflation to Come

October 7, 2021

An unconventional, but closely watched inflation indicator has hit a record high, suggesting that upward price pressure could persist during the months ahead.

The Manheim Used Vehicle Value Index, which tracks the prices that dealers pay for used cars on the wholesale market, jumped 5.3% from August to September and is up 27.1% from the same month last year.

Because the index tracks wholesale prices, it is seen to be something of a leading indicator. The higher prices being paid now by dealers will be passed on to consumers in a few months’ time.

Used car prices have a small impact on the overall direction of inflation, but since the pandemic began, they have been seen as an important indicator of price pressure. Prices have surged since the pandemic began. Initially, demand was driven by consumers looking to avoid crowded public transportation or needing personal transportation as they left urban areas. Price pressure persisted as the ongoing chip shortage is throttled the production of new cars, leaving consumers with no choice but to compete for used models.

The Manheim index showed signs of cooling over the summer, leading many to hope that inflationary pressures were beginning to subside. The latest reading, however, suggests that high demand and low supply will persist for some time, meaning higher prices for consumers.

An economist from the company behind the index noted to the New York Times that new vehicle production problems worsened instead of getting better during the third quarter. He also noted that recent storms and hurricanes flooded potentially hundreds of thousands of cars, putting additional demand on an already tight market.

Read all Blog posts