Inflationary Whack-A-Mole: Used Car Prices On The Rise Again, Can We Expect A Jump In CPI?

January's unexpected surge in used car prices makes it difficult for auto purchasers to trust that inflation is on the decline even as the Federal Reserve raises interest rates.

And prices will likely continue to climb.

What Happened: Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) increased 2.5% in January compared to December, according to Cox Automotive subsidiary Manheim Auctions.

The Manheim Used Vehicle Value Index rose to 224.8, down 12.8% from a year ago. January’s increase was driven in part by the seasonal adjustment.

But, according to pseudo anonymous well-followed Twitter handle @GuyDealership (CarDealershipGuy), that data may already be outdated, and prices have increased again since Tuesday’s report.

“The pace at which used car prices are rising at dealer auctions right now is absolutely baffling,” DealershipGuy tweeted the day after Manheim issued its report.

DealershipGuy pointed out that as of Wednesday, Feb. 8, auction prices were “*much* higher than January,” essentially nullifying the recent data issued by Manheim.

While Manheim’s used-vehicle value index was down 12.8% in January from a year ago, it’s crept back up on a sequential basis in the past two months, retracing ome of last year’s 15% decline. Eagle-eyed auctioneers and investors could interpet DealershipGuy’s tweet to mean that Manheim’s yet-to-be-issued February used vehicle index will see another sharp spike.

The higher average daily sales conversion rate of 59.4% further suggests a spike in demand and prices, which DealershipGuy says offers sellers more pricing power at auctions, despite Manheim's study suggesting that the price rises recorded last month were not typical.

According to Dealertrack statistics from Cox Automotive, same-store retail sales of used vehicles increased by 16% in January from December and by 5% over the previous year. This boost in demand is being driven by dealers wanting to buy inventory.

See Also: People Aren't Keeping Up With Car Payments — And It Hasn't Been This Bad Since 2009

Why It Matters: Inflation, of course.

Retail prices of used cars decreased dramatically last year, but recent wage growth has consumers buying used cars in increasing numbers.

This rise in demand has led to upward pressure on prices and may have an impact on the core inflation measures.

Falling used vehicle retail prices have been putting downward pressure on the core CPI and core PCE price index — a boon for the Fed's preferred inflation measure — but this pressure is currently lessening and may even be turning around.

It might be bad news for the month-to-month core inflation measures anticipated this spring and summer if similar tendencies from the wholesale market in January carry over to the retail sector, with rising used vehicle retail prices amid increased demand.

See Also: This Automaker Sold Its Russian Business For 1 Euro