Low Inventory Hits the Gas on Used Car Prices

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NOTD - 10%

The Balance

That's how much the price of used cars and trucks went up last month, the largest one-month jump on record, as consumers eager to get out turned to alternatives amid a shortage of new cars.

The increase in the price of used vehicles, the largest since the government started tracking it in 1953, powered a 0.8% jump in the overall Consumer Price Index (CPI), according to data released Wednesday by the Bureau of Labor Statistics. Compared to April 2020, the index is up 4.2%, and the core inflation rate—which excludes volatile food and energy prices—rose the most since April 1982, growing to 3.0%.

There were increases in prices across the board, as the economy reopened and consumer demand surged, just as a shortage of manufacturing materials limited production. The auto industry may be a prime example of what happens when a spike in demand and a drop in supply collide, economists said. Lack of parts, like semiconductors, are limiting the number of new cars automakers can produce, causing shutdowns at some factories. Meanwhile, a pandemic-driven burst in sales has sapped the existing inventory of new cars and trucks, leaving fewer on dealer lots. Consumers are turning to used vehicles, pushing the price higher. (And dealers, hoping to keep up with demand, are paying more for trade-ins to ensure lots are stocked.)

Don’t expect car prices to go down any time soon, either. Economists said the shortage of semiconductors will likely continue for some time, lengthening the shutdown in new-car production and forcing car dealers to continue to raise prices as inventory decreases.