Used car prices rise unexpectedly

Used car prices unexpectedly rose for the second month in a row in January, data from Manheim showed, stoking fears that inflationary pressures could rise again.

The Manheim Used Vehicle Value Index, which tracks wholesale auction prices for used cars, rose 2.5% in January. Prices also rose in December, the first month-over-month gain since May 2022. Following the gain, the index is at the highest level since August 2022, indicating that much of the fall in prices in the second half of last year has been erased.

The Manheim Wholesale Index is considered a leading indicator of new car prices and retail used car prices. The drop in the wholesale price index last year anticipated a decline in used car prices as measured by the consumer price index a few months later.

Manheim estimates second-hand retail sales were up 16% in January from December, and second-hand retail sales were up 5% year-over-year.

Used car prices represent about 4.5% of the core consumer price index, which excludes food and fuel prices. As a result, rising used car prices can push up the overall measure of inflation. In 2021, a sharp rise in used car prices was a leading indicator of more generalized inflation.
One of the reasons used car prices are sometimes a leading indicator of inflation is that they are very flexible and responsive to market conditions. Other prices take longer to adjust to increases or decreases in demand. So when inflation rises, it may appear first in the used car market.

Despite increases in December and January, used car prices remain lower than they were a year ago. Manheim’s used vehicle value index is down 12.8% from January 2022.


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