Worried About Inflation? This Indicator Suggests Pricing Pressure May Be On Its Way Down

After October producer and consumer price inflation prints raised hopes of a let-up in inflationary pressure, the focus has shifted to other indicators that have implications for inflation.

What Happened: Used car prices, as measured by the Manheim User Car Index, have now declined 14% year-over-year, marking the biggest annual drop with data going back to 2009, Charlie Bilello, founder and CEO of Compound Capital Advisors said.

The index served as a leading indicator of higher inflation rates in 2020, he noted. The recent downturn, therefore, is likely to be a leading indicator of inflation rates to come, he added.

Used car prices are now down 14% over the past year, the largest YoY decline on record with data going back to 2009. This was a leading indicator of higher inflation rates in 2020 and the recent downturn is likely a leading indicator of lower inflation rates to come. pic.twitter.com/N1e7v9ZNjM

— Charlie Bilello (@charliebilello) November 18, 2022

See also: Cathie Wood Warns Of 1929 Great Depression Scenario If Fed Doesn't Pivot, Says Inflation Could Turn Negative In 2023

In a separate tweet, Bilello highlighted the CarGurus Used Car Index, which was trading at a 52-week low.

The Used Car Bubble is bursting... pic.twitter.com/A6fH8skmDp

— Charlie Bilello (@charliebilello) November 19, 2022

The fund manager said he expects the next consumer price inflation report to show a negative year-over-year print for used cars/trucks. “This would be the first year-over-year decline in a major CPI component in over a year,” he added.

Why It’s Important: Some market watchers and analysts have begun calling for deflation. Ark Invest’s Cathie Wood on Friday quote-tweeted a graphic showing a record fall in supplier delivery time and said she expects inflation to fall in line with the chart.

“Deflation is the risk,” she added.

If the November consumer price inflation report confirms that the easing seen in pricing pressure in October signals a trend and not an aberration, the Fed might be emboldened to at least telegraph that a slowdown in rate hikes could be in the cards.

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