Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Creates a Second-Hand Car Price Surge
Transcript
- Lucas: Luna, I want to talk about something that is quietly frustrating a lot of people right now: the price of used cars. Because according to the latest CPI data from April, the index for used cars and trucks rose again — and it's been climbing for several months in a row now. Luna: I've noticed that. I was looking at listings for a friend last week, and a 2020 Honda Civic with sixty thousand miles was listed at twenty-two thousand dollars. That feels like pandemic pricing. Lucas: Right. And that's exactly the puzzle. Because we're not in a pandemic anymore. New car production has largely recovered from the semiconductor shortage that crippled it in 2021 and 2022. So conventional logic says used car prices should be falling, not rising. But they're up. Luna: So what's driving it? Is it demand? Or is this a supply problem that just hasn't worked itself out yet? Lucas: It's both, but in a specific way that I think most people don't see. Let me start with supply. The semiconductor shortage didn't just reduce new car production for two years — it created a multi-year hole in the supply of off-lease vehicles. See, when new car sales plummeted in 2020 and 2021, those are the cars that would have been coming off three-year leases right now, in 2024 through 2026. Luna: So there's a delayed effect. The cars that should be entering the used market today were never built in the first place. Lucas: Exactly. And that's the structural supply deficit. But there's also a demand-side story. Rental car companies sold off huge portions of their fleets during the pandemic to stay afloat. Now travel is back — domestic air travel hit record levels earlier this year — and those companies are trying to rebuild fleets. But they can't buy new cars fast enough, so they're competing with regular consumers at used car auctions. Luna: That's a double squeeze. Fewer off-lease cars coming in, plus rental companies bidding up the ones that do exist. Lucas: And that's before you factor in what's happening with new car financing. New car loan rates are still elevated — the Fed funds rate has been sitting around three point six percent since April, and auto loan rates are higher than that. So some consumers who would normally buy new are shifting to used, which adds even more demand pressure. Luna: I want to tie this back to the CPI data you mentioned. The headline CPI for April came in at 332.4, up from 330.29. But core CPI — which strips out food and energy — was even higher at 335.4. Used cars are a notable component there. How much weight do they actually carry in the index? Lucas: Used cars and trucks make up roughly three to four percent of the CPI basket by weight. That doesn't sound huge, but the volatility in that category can swing the monthly core number noticeably. In months where used car prices spike, they can add a tenth or two to the monthly core reading. And because the Fed is watching core CPI closely for signs that inflation is sticky, this matters. Luna: So the used car market is essentially sending a signal that supply-driven inflation isn't dead. It's just moved into different channels. Lucas: Exactly. And that's the broader lesson here, I think. When people hear 'inflation is cooling' in the headlines, they look at their own expenses — rent, groceries, car insurance — and they feel a disconnect. Used car prices are one of those categories where the official number and lived experience can diverge sharply. Luna: Speaking of living with these numbers — a quick thought. If our conversations about money and inflation have helped you make a smarter decision, or even just think about your own finances more clearly, that's exactly why we do this show ad-free. And if you'd like to support that, there's a simple way: you can buy us a coffee at buy me a coffee dot com slash fexingo. No pressure, but it helps keep these conversations going. Lucas: Appreciate that, Luna. And honestly, listener support is one of the reasons we can dig into something like the used car supply chain without worrying about commercial breaks. So thank you to anyone who does. Luna: Alright, back to the cars. Lucas, you mentioned the rental fleet rebuilding. Is that demand likely to persist? Or is this a one-time catch-up? Lucas: Most analysts think the rental fleet rebuild will peak late this year and then taper off. But the off-lease deficit is going to take longer to heal — probably until 2027 or 2028, when the cars that were sold in the recovery years start coming back. So we could see used car prices remain elevated for another eighteen months at least. Luna: That means if someone is in the market for a used car today, they might want to consider buying new if they can get a reasonable interest rate. But that's hard when rates are where they are. Lucas: It's a tough call. But there are some strategies. For example, looking at off-brand models or less popular trims can reduce the premium. Also, consider cars that are three to four years old rather than two to three — that's where the supply pinch is most acute, because those are the off-lease years. Older cars have less of a supply deficit. Luna: And from an inflation perspective, what does this say about the broader economy? Because used cars are a cyclical indicator, aren't they? Lucas: They are. Normally, rising used car prices signal strong consumer demand, because people are willing to pay more for transportation. But right now it's more of a supply-side distortion than a demand signal. So if the Fed looks at this and sees inflationary pressure, they might be misreading it. The ten-year breakeven inflation rate has actually dipped slightly to 2.39 percent — markets are pricing in lower long-term inflation. So there's a tension between the market's view and what we're seeing in this one category. Luna: That tension is the story of 2026 so far, isn't it? Different parts of the economy telling different stories about inflation. Lucas: It is. And that's why I think it's worth paying attention to specific categories like used cars. They're not the whole picture, but they're a reminder that inflation isn't a single number — it's a collection of thousands of prices moving at different speeds. And for a lot of households, the prices that move fastest are the ones that hurt most. Luna: Well said. And maybe the takeaway here is: if you're planning a big purchase like a car, do your homework on the specific segment you're buying into. The averages might not apply to you. Lucas: Exactly. And that's probably the most practical inflation hedge there is: being informed about the market you're actually in.