Analysts expect the surge in used-car prices that contributed to increased U.S. inflation will reverse course in June, resulting in the deceleration of a closely monitored price gauge.
Despite a significant decline in the headline rate, core inflation, which excludes food and energy prices, has remained persistently high. May data shows an increase in used-car prices played a major role in keeping core inflation high, according to Bloomberg.
But leading indicators of auto prices have decreased, according to private firms, such as Manheim. The Bureau of Labor Statistics' July 12 report on consumer prices will probably report the same, finds Bloomberg Economics.
“Since Manheim prices have fallen pretty significantly, we aren’t expecting too much inflationary pressure from used cars and trucks over the back half of the year, especially since new car prices haven’t really been going anywhere,” said Justin Weidner, a U.S. economist at Deutsche Bank.
Used-car prices soared during the pandemic, leading to a greater emphasis on indicators like the Manheim U.S. Used Vehicle Value Index for early indications of market shifts. The Manheim index, which rose every month from December 2022 to March 2023, fell 3.1% in April and another 2.7% in May. An index maintained by Black Book showed similar declines in April and May. Economists suggest the trend will continue.
But Veronica Clark, an economist at Citigroup Inc., told Bloomberg that not all volatility has disappeared. She sees “some dynamics of pent-up demand and inventory rebuild” that may keep auto demand strong, and prices shifting from month to month.
Still, Bloomberg Economics suggests change is in the air. “Consumers are becoming more discerning in their spending patterns, limiting spending on both interest rate-sensitive categories such as autos and discretionary goods purchases ... With more consumers struggling to make car payments, pent-up demand for cars might not last," Bloomberg Economics reported.
Other categories in the inflation index also point to lower inflation ahead. The consumer price index's largest component, rents, saw smaller monthly increases in May than much of 2022. Experts predict further slowing down in the months to come, Bloomberg noted.
Increases in services prices, excluding rents, are also slowing. The 12 months through May saw a rise of 4.6% in services prices, which marks the smallest annual increase in 15 months.