Used car prices fell 1.4% in August, after 7 months of increases

Used car prices fell 1.4% in August, after 7 months of increases

Despite the downward data, the doubt remains that the trend will continue given the lack of chips that affects the production of new cars in the industry.

Photo: Negative Space / Pexels

Used car prices fell 1.4% last month, registering its first decline since January, which could be evidence that at least part of the inflation observed in the US economy could be “transitory”, Fox Business published.

“Used car prices began to experience a negative recovery after last year’s record rebound,” noted the Bank of America team, led by economist Alexander Lin.

However despite the fall in August, the prices of used cars still posted a 31.9% rise from the previous year’s levelsThis is motivated by the global shortage of chips, as it has prompted consumers to turn to the used vehicle market to meet their demand.

Prices have also been strengthened by the shift from city centers to suburbs during the pandemic and by multiple stimulus checks that gave consumers more cash to spend.

Jerome Powell, Chairman of the Federal Reserve, has described the current conditions of the automotive environment as a “Perfect storm of very strong demand and limited supply”.

The Fed has pointed to the rise in used car prices as evidence that inflation is transitory, noting that prices will recede as soon as supply chain disruptions caused by the pandemic are resolved.

Despite the 1.4% drop registered in August, there is expectation to know how much more prices can fall, since large manufacturers such as Ford and General Motors, have been forced again to cut their production due to chip shortage.

Monish Patolawala, 3M CFO, recently commented at a Morgan Stanley conference that new vehicle production will decline 6% year-over-year in the second half of 2021, as the global chip shortage continues through 2022.

For analysts, it is likely that used car prices will continue to moderate, as retail prices tend to lag a couple of months behind what dealerships pay.

Still, there is concern that the price drops are temporary, as the latest survey by the Federal Reserve Bank of New York found that the average expectation is that prices are higher by 5.2% within a year.

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