Few Cars, Lots of Customers: Why Autos Are an Inflation Risk

Mr. Smoke’s predictions — and worries — are more grim than what many economists are penciling into their forecasts.

Alan Detmeister, a senior economist at UBS and former chief of the Federal Reserve Board’s wages and prices section, said he expected a 15 percent decline in used car prices by the end of the year, with new car prices falling 2.5 to 3 percent.

Those estimates are predicated on an increase in supply.

“This is a huge wild card in the forecast,” Mr. Detmeister said. But even if production doesn’t pick up, “it is extremely unlikely that we’ll see the kind of increases we saw last year,” he added, referring to prices.

Omair Sharif, founder of Inflation Insights, a research firm, said he was still expecting improved supply and slower demand to help the used car market come into balance. While used car prices may rise for a few months as households spend tax refunds on automobiles, he expects the increase to be modest in part because they already nearly match new car prices.

“I would be shocked if the used car market really accelerated,” he said. New car prices are a more complicated story, he added: “There, we have legitimately serious inventory problems.”

Automakers are struggling to ramp up production. Russia’s invasion of Ukraine has created shortages in electrical components needed for cars, prompting SP Global Mobility to cut its 2022 and 2023 forecasts for U.S. production. More critically, the chips needed to power everything from dashboards to diagnostics remain in short supply. Ford Motor and General Motors temporarily shut down some U.S. factories last week because of supply issues, and the industry broadly cannot ship as many cars as customers want to buy.

In cars, “production remains below prepandemic levels, and an expected sharp decline in prices has been repeatedly postponed,” Jerome H. Powell, the Fed chair, said during a speech last month. He noted that while supply chain relief in general seemed likely to come over time, the timing and scope were uncertain.

Article source: https://www.nytimes.com/2022/04/10/business/economy/cars-inflation.html