Vehicle prices continued a downward trend in July — the most of any major category in the Consumer Price Index (CPI) over the last year as the car market continues its return to “normal” following pandemic-fueled inflation.
Used car prices fell 2.3% over the prior month in July and 10.9% from the prior year, data from the BLS revealed on Wednesday. New car prices fell 0.2% in July and 1.4% from the prior year.
Compared to their peak in February 2022, prices paid for used vehicles are now down 19.4%. Used car prices rose more than 40% annually in both June and July 2021, and again in January and February 2022. Prices for used cars and trucks are still 16.9% higher than in July 2019.
In July, headline CPI rose 0.2% over the previous month and 2.9% over the prior year, which was a slight deceleration compared to June’s 3% annual gain in prices and also ahead of economist expectations of a 3% annual increase.
The continued downward pressure in the used and new vehicle market comes as inventories build up, leading to lower prices — especially when it comes to used cars.
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“These trends in the used market are a direct reflection of dynamics in the new-car market as inventory levels normalize,” auto research firm Edmunds said in its Q2 vehicle prices report. “A buildup of new vehicles on lots over the past year has been the catalyst for discounts and incentives on aging inventory. As these new car prices trend downward, values of newer used vehicles have correspondingly declined.”
A return to normalcy for auto prices is a welcome change for buyers, though dealers may be feeling a slight pinch as a result. But despite falling prices and rising inventories, automakers like Ford (F), GM (GM), and Toyota (TM) have still seen strong sales at the dealer level. GM, in particular, is only expecting modest drops in average transaction price.
There is good news for used car dealers: The Manheim used vehicle value index (MUVVI) rose slightly in July compared to June, indicating more demand for used cars. The MUVVI tracks prices paid by dealers at the wholesale level, and price action here generally trickles down to the consumer market.
Manheim’s analysts believe a smaller quantity of leased vehicles coming to the used market may continue to bump prices higher. The question: Will this just be a blip on the radar, or sustained upward draft in used vehicle prices?
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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