Inflation is defined as the decrease in the purchasing power of money, which also indicates the increase in the prices of goods and services. If your dollar loses some power, the prices of the things you need will likely rise accordingly. If you are wondering how inflation affects car prices, recent data suggests the opposite may be happening now.

MarketWatch reports that in June and April, soaring used vehicle prices accounted for about a third of the overall increase in the cost of living. The New York Times reports that consumer prices have globally increased by more than 5% in the past year. Normally used cars don’t have much influence on inflation, but the new car shortage is changing that.

The Manheim Used Vehicle Value Index has become a much more closely watched inflation indicator since the start of the pandemic. And it’s going to continue to be one until the market returns to normal, whatever that may sound like. Economists, traders and analysts find themselves watching it to see if they can find any indicators to predict when used car prices – and headline inflation – might come down. But why?

Soaring used vehicle prices are partly responsible for the inflation we are seeing this year. Used car prices usually don’t move the needle when it comes to inflation, but since the price went up so much initially, it spiked, and prices are still up 32% per year. compared to pre-pandemic levels.

Today, most consumers are aware of record prices for used vehicles. There are many moving parts that explain why used vehicle prices are so high, but it stems first from plant closures and chip shortages.

If you are currently on the hunt for a used car, the inflated prices could increase your cost of living and you will likely end up with a limited choice. We also don’t know when used car prices are likely to fall, but it may not be until 2024. Moreover, when prices rise so much, causing inflation, the dollar loses value. value, prompting the Federal Reserve to raise rates.

On the other hand, if you have a used car to trade in, you may be in a good position. Dealers need inventory, as do car rental companies, who are now forced to buy vehicles directly from dealerships instead of wholesale auctions.

We also see repossession assistance cash incentives offered by manufacturers from time to time, sometimes reserved for borrowers going out of a lease. We saw an extreme case in April that offered a $ 4,000 trade-in bonus on the new F-150. There is no doubt that these trade-in incentives are attempts to get buyers to trade in their used vehicles to replenish inventory.

Automakers are still offering incentives on their new cars despite the low stock. While you may have to wait a bit longer for delivery, the offers are still there.

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