Used car and truck prices in April surged by the most since recordkeeping began in 1953, boosted by pent-up demand among consumers, many of whom had more cash to spend thanks to government stimulus measures.
Used car and truck prices rose 10% last month and were up 21% versus the same period last year.
"People have a lot of extra money that the government is giving them, so they are going out and buying cars," said Steve Moore, senior economic contributor at FreedomWorks, a grassroots organization that advocates for smaller government.
He noted the increased demand comes amid supply chain disruptions that have resulted in fewer new cars being produced. New vehicle inventory at dealerships was down 36% year over year in March, according to online car-shopping guide Edmunds.
That was before automakers, including Ford Motor Co. and General Motors Co., deepened production cuts in order to further navigate the semiconductor chip shortage that developed in the wake of COVID-19. Those output cuts came about a year after automakers were forced to temporarily shut production in order to comply with stay-at-home orders aimed at slowing the spread of COVID-19.
The jump in used car and truck prices accounted for more than one-third of the consumer price index’s 0.8% monthly increase. Consumer prices rose 4.2% year over year in April, making for the biggest annual increase since September 2008.
The annual data has a "base effects" skew due to the decline in prices that occurred at the start of the pandemic.
"Inflation is likely to head even higher over the next couple of months as price levels in a vibrant, strengthening economy that has supply constraints, contrast starkly with those of twelve months ago when the economy was in lockdown and prices were being slashed in order to generate cashflow," said James Knightley, ING’s chief international economist.
Even quicker price increases are likely to put pressure on the Federal Reserve to remove the emergency policies that were put in place to steer the U.S. economy through its deepest slowdown of the post-World War II era.
The Fed last year cut interest rates to near zero and pledged to buy an unlimited amount of assets. The central bank also said it would let inflation moderately exceed its 2% target for some time before taking action.
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For Moore, the answer is simple: Congress needs to stop its unnecessary spending and borrowing.
"We don't need another two or four trillion dollars spending," he said in regards to Democrats’ proposals for childcare and infrastructure. "That would be adding gasoline to the fire with some inflation."