Few cars, lots of customers: Why cars are an inflation risk
McCabe doesn’t think car inventory will fully rebound: Dealerships and automakers have learned they make more money by efficiently building cars to order and operating with learner inventory. If so, the permanently tight supply could have implications for the rental and used car markets.
If car prices continue to rise rapidly, it will be difficult for headline inflation to moderate as much as economists expect – to around 4-4.5%, as measured by the consumer price index. consumption by the end of the year, according to a Bloomberg survey, down 7.9% in February.
This is because prices for services, which make up 60% of the index, are also rising sharply. They rose 4.8% in the 12 months to February and could remain high or even continue to rise as labor shortages take hold.
Of the goods that make up the remaining 40% of the index, food and energy account for about half. Both of these options have recently become significantly more expensive, and unless trends change, they should contribute to high inflation this year. This places the responsibility for cooling inflation on the commodities that make up the rest of the index, such as cars, clothing, appliances and furniture.
While the Fed’s policy changes could dampen demand and possibly slow prices, policymakers and economists hoped for natural help as supply chains for cars and other goods expand.
“We still expect some property deflation,” Laura Rosner-Warburton, economist at MacroPolicy Perspectives, said of her forecast. She said she expected fuel prices to moderate and her appeal included “modest declines” in vehicle prices.
Economists aren’t the only ones hoping that predictions of a rebound in supply and more subdued car prices come true. Buyers and dealers are desperate for more vehicles. Ms. Diehl in Pittsburgh sells brands such as Toyota, Volkswagen, Hyundai and Chevrolet, and companies have told her inventories may start to recover toward the end of the year — a reprieve that seems a long way off.