Used car lot.
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Prices for used cars sank in August after surging at record pace through spring.
Shortages of used vehicles drove rental prices higher just as the economy was reopening.
The August decline should pull rental costs lower and dampen price inflation throughout the economy.
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Travelers rejoice: Rental car prices, which soared through the spring and summer, are finally falling.
As the economy reopened, prices for used vehicles soared – more than those for any other product. This included rental cars and in travel hotspots like Hawaii, people resorted to renting Uhauls instead.
This also had implications for the broader economy: Monthly inflation spiked to 10% in April, slowed to 7.3% in May, and rebounded to 10.5% in July as Americans rushed to buy whatever used cars they could. Over those three months, used vehicle prices counted for roughly one-third of overall inflation.
That rally now seems to be over. Prices rose just 0.2% in July, and data out Tuesday shows them sliding 1.5% in August. That’s the largest one-month decline for used-car prices since November 2016. After powering much of the spring boom in broad price growth, used car prices are helping pull inflation to less concerning levels.
The used-car market featured many of the trends that powered this year’s decade-high inflation. For one, supply shortages crimped new vehicle production and pushed more buyers to look at previously owned cars. And, by definition, the used car market has limited inventory. While demand for the vehicles intensified, sellers were stuck with inadequate supply. That quickly translated to surging prices – both for used vehicles and rental cars – across the country.
The August slide is likely the start of a “sustained drop,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said Tuesday. Some of the spring surge was fueled by rental fleets buying cars at auction for the busy summer season. That trend is over, and falling used vehicle prices should dampen overall inflation in the months ahead, Shepherdson added.
To be sure, inflation still sits at uncomfortably high levels. The Consumer Price Index – a popular measure of broad price growth – rose 5.3% year-over-year in August, well above sustainable levels. CPI readings should moderate in the months ahead, but lingering demand for hotel rooms and air travel risk keeping inflation elevated once the Delta wave fades, Shepherdson said.
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Source:: Business Insider