Turning Point: CPI Used Vehicle Jump “Not Seasonally Adjusted,” Tracks Wholesale Price Growth With a Two-Month Lag for the First Time Since July

The historic decline in retail prices for used vehicles from completely absurd highs may have already ended.

By wolf richter For wolf street,

Used vehicle prices, which rose ridiculously from 2020 to 2021, were a big player in the rise in inflation during that time. Then, in early 2022, used vehicle prices began to decline, and the CPI for used vehicles fell, and this helped push the overall CPI and “core” CPI down.

But now, after these historic distortions, there is a complete disconnect between used vehicle wholesale prices, which have been rising for months, and the used vehicle CPI, which has been steadily falling, including Are Yesterday’s Seasonally Adjusted CPI Release for March, Or so it seems.

Wholesale prices of used vehicles, seasonally adjustedjumped for the fourth month in a row, this time 1.5% in February to March, following a 4.3% spike in February, according to Mannheim, the largest auto auction house in the US and a unit of Cox Automotive (red line in the chart below).

not seasonally adjusted, wholesale price Jumped for the third month in a row, this time up 3.5% to $21,375 (green line) after a 3.7% jump in February. The wholesale price has now recovered in three months, almost half (+$1,760) of what was lost in the previous 13 months ($3,199).

Both metrics of wholesale prices are adjusted for changes in mix and mileage. These increases in auction prices show that dealers have to pay more to buy vehicles to replenish their inventory, and hence increase their costs.

Used vehicle CPI increased “not seasonally adjusted” in March.

The used vehicle CPI jumped in March, but we didn’t look in the right places. The commonly quoted CPI for used vehicles is “seasonally adjusted”. But the “non-seasonally-adjusted” CPI vehicles jumped 1.0% in February from March, the first increase since July last year.

There is usually a lag of a few months between major changes in wholesale prices and when the CPI for used vehicles picks up those changes when they make their way into the retail prices at which dealers sold those vehicles. .

So this first increase in the non-seasonally-adjusted CPI for used vehicles is two months behind the non-seasonally-adjusted Wholesale Index, which has risen for the third month in a row, and has returned to its normal time lag of a few months. Way.

This, along with a look at the wholesale chart, tells us that the decline in the used vehicle CPI is over, and that used vehicle prices may soon stop pushing the core CPI down.

The “seasonally adjusted” CPI vehicles continued to decline.

As if nothing had happened on the wholesale side of the trade, the seasonally adjusted CPI for used vehicles continued to decline, including in March — though at a slower pace of 0.9% — a cumulative decline from the December 2021 peak. to 15%.

This is a huge unprecedented fall after a massive unprecedented jump. And as the spike pushed the CPI and especially the core CPI up, the decline pushed the CPI and especially the core CPI down. And this step may end with:

Seasonal Adjustment…

Wholesale and retail prices usually increase in March. It’s the start of spring sales season, and it’s tax-refund season, and people, armed with tax refunds in the form of down payments, are coming out of hibernation to buy used vehicles in March and April. are, and demand is driving up prices. Dealers are stocking up for it at auction and raising the auction prices. This is normal and predictable, and seasonal adjustments are to blame.

The non-seasonally adjusted CPI for used vehicles increased an average of 1.24% in February to March over the past 10 years. And so the 1.0% increase in March 2023 was erased by seasonal adjustment.

But this march was a little different in many ways,

still high prices: Retail prices for used vehicles have come down somewhat from the absurd levels of a year ago, but they are still at almost absurd levels, and many people are not interested in paying those prices, and they are driving are those they are already running to be close.

Smaller and Fewer Tax Refunds: Even though the IRS processed more refunds through March 31 than the same period last year, the average refund fell 10% to $2,910, and about 1% fewer people received refunds. The IRS issued $183 billion in refunds (almost all in the form of direct deposit), down 10.4% from the same time last year ($204 billion), according to IRS data,

Dealers are ready to give up their huge per-vehicle gross profit sleeves He gave a feast during the epidemic. Dealers have a lot of room to play with, given their per-vehicle gross, and they can get the price to match the volume, and still get a higher price per vehicle than in pre-pandemic normal times. You can earn a lot of money from the vehicle. So they are bidding auction prices even as they are willing to do deals to get retail quantities. This may sound like a profit-margin squeeze, but it is a step back towards normal-ish per-vehicle grosses before the pandemic, as this market is far from normal.


So given the volatility in wholesale prices, and the lag of the CPI from wholesale prices for used vehicles, I would expect the “not seasonally adjusted” CPI for used vehicles to increase further in April, And the “seasonally adjusted” CPI will be either roughly flat or up in April, which would mark the end of the historic decline in the used vehicle CPI. This would indicate that consumers are becoming more and more used to still higher prices, and this would be a bad sign for inflation.

Sudden short stock with dealers may increase prices further, As of early March, the supply of used vehicles had shrunk to just 38 days (compared to 53 days in early March 2019), according to data from Cox Automotive.

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