It’s Happening Again: Used Car Prices Unexpectedly Jump Higher

Prices of used cars unexpectedly rose for the second consecutive month in January, according to data from Manheim, fueling fears that inflationary pressures may be rising again.

The Manheim Used Vehicle Value Index, which tracks wholesale auction prices for used cars, rose 2.5 percent in January. Prices were up in December, as well, the first month-to-month gain since May of 2022. Following the gain, the index is at the highest level since August of 2022, indicating that much of price decline in the latter half of last year has been erased.

Manheim’s wholesale index is thought to be a leading indicator for both new car prices and retail used car prices. The decline in the wholesale index last year anticipated a decline in used car prices measured by the Consumer Price Index months later.

Manheim estimate that used retail sales increased 16 percent in January from December and that used retail sales were up 5 percent year over year.

Used-car prices account for about 4.5 percent of the core Consumer Price Index, which excludes food and fuel prices. As a result, rising used car prices can push up the overall measure of inflation. In 2021, a sharp rise in used car prices was a leading indicator of more widespread inflation.
One reason used-car prices are sometimes a leading indicator for inflation is that they are highly flexible and responsive to market conditions. Other prices take longer to adjust to increases or decreases in demand. So when inflation is rising, it can show up first in the used car market.

Despite the increases in December and January, used car prices remain lower than they were a year ago. The Manheim Used Vehicle Value Index is down 12.8 percent compared with January of 2022.