NEW YORK–Forget looking at what’s under the hood. For an increasing number of economists, used car prices is the index getting the most scrutiny when it comes to inflation.
“The cost of clunkers and dealership trade-ins has suddenly become market-moving information, with analysts, economists and traders fixating on an obscure indicator called the Manheim Used Vehicle Value Index,” the New York Times reported.
Robert Rosener, a senior economist at Morgan Stanley, told the Times, “I’ve never spent so much time looking at it. I don’t think I’ve ever spent so much time talking about used car prices in my life, either.”
As the Times noted and as many credit union lenders are well aware, the Manheim index provides a monthly update on the prices of used cars sold in wholesale auctions. With the used car market surging, partly because of a chip shortage for new vehicles, the index offers crucial information for investors trying to answer what’s going on with inflation, the report noted.
‘Fastest Pace in More Than a Decade’
“Over the last year, consumer prices have risen more than 5%, the fastest pace in more than a decade,” the Times reported. “This is an important consideration for virtually everyone on Wall Street. High inflation is a major threat for bond investors, because over time it erodes the real-world return of the regular interest payments they receive. Inflation also matters to stock market investors because, historically, it has prompted the Federal Reserve to increase rates, which can send shares tumbling.”
One big reason for a surging Consumer Price Index has been the shortage of automobiles, both new and used, with buyers flocking to the used car market and driving up prices. As CUToday.info has also reported, in June, prices for used cars and trucks were up 45% from a year earlier, according to the Bureau of Labor Statistics.
“This one component, which has contributed so much to overall inflation in the first half of the year, how far and how fast is it going to come down?” Brett Ryan, an economist at Deutsche Bank, who now watches used car prices closely each month, told the Times. “Manheim is your best guide.”
Data That is ‘Adored’
“The attribute of the Manheim index that analysts adore is that it captures the wholesale prices that dealers pay, which typically determine what consumers are charged a couple of months later,” the Times noted. “That makes Manheim a leading indicator of consumer prices, usually offering a two- or three-month jump on the numbers that show up in the Consumer Price Index.”