Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Used Car Prices Are Defying the Inflation Narrative
Transcript
- Lucas: The April CPI release showed headline inflation at three-point-three percent year-over-year, down from three-point-four in March. Core CPI, excluding food and energy, also eased slightly. But there's a category that actually accelerated: used cars and trucks. Luna: That's interesting because for the past year the narrative has been that vehicle prices were normalizing. What happened? Lucas: A few things. First, new car production is still constrained relative to pre-pandemic levels—semiconductor shortages aren't fully resolved, and some plants have shifted production to higher-margin models. That means fewer trade-ins and fewer off-lease vehicles hitting the used market. At the same time, demand for used cars has held up because new car affordability is terrible. The average new car transaction price is still north of forty-eight thousand dollars. Luna: Right, so people are getting priced out of new and turning to used. But wouldn't higher interest rates dampen that demand too? Lucas: They do, but the supply crunch is stronger. According to the April CPI report, used car prices rose zero-point-six percent month-over-month, compared to a decline of zero-point-two percent in March. That's a swing of nearly a full percentage point. And if you look at wholesale auction data from early May, prices are still climbing. Manheim's Used Vehicle Value Index was up year-over-year for the first time in over a year. Luna: So the official CPI is catching up to what the wholesale market's been signaling. That's often the pattern with lagging indicators. Lucas: Exactly. And this matters beyond just car buyers because the Fed's preferred inflation gauge, the core PCE index, also includes used cars. April's core PCE came in at two-point-eight percent year-over-year—still above the two percent target. If used car prices keep rising, that's a headwind for getting inflation down. Especially when services inflation, like rent and insurance, is already sticky. Luna: And speaking of insurance, we did an episode on that recently. But back to used cars—are there any structural changes that could keep prices elevated even after supply catches up? Lucas: Potentially, yes. One factor is that cars are lasting longer. The average age of a vehicle on U.S. roads is now over twelve years. So people are holding onto their cars longer, which reduces the flow of used cars into the market. Also, leasing dropped off during the pandemic, so there are fewer off-lease cars now than in a typical year. That's a multi-year hangover. Luna: So the 'normalization' we thought was happening in the auto market might be more of a plateau than a decline. Lucas: Right. And for the average consumer, this is showing up in a weird way. If you're shopping for a used car today, you might see prices that are still twenty to thirty percent above 2019 levels. Meanwhile, the overall CPI for used cars is 'only' about fifteen percent above pre-pandemic. So the official numbers understate the pain for someone actually trying to buy. Luna: That gap between CPI and personal experience—we've talked about that before. It's because CPI is a weighted average of all transactions, including private-party sales, which might be lower than dealer prices. Lucas: And because CPI is a price index, not a price level. So even if prices stay high, if they stop rising as fast, the index shows cooling. But your wallet still feels the sting. Luna: Which brings us back to the bigger question for June of 2026: is the Fed going to see this used car uptick as a blip or a trend? The next CPI report is due in a few days, on June 10th. Lucas: That's the key. The May jobs report comes out tomorrow, and then CPI next Wednesday. If used cars show another month of acceleration, it could reinforce the Fed's cautious stance. The fed funds rate is currently at three-point-six-three percent, and the market is pricing in maybe one cut by year-end. But a hot used car print could push that further out. Luna: And you know, Lucas, it's funny—early in the pandemic, used car prices were one of the first inflation stories everyone noticed. Now they're back in the spotlight, but in a subtler way. Lucas: It's a reminder that inflation isn't a single number. It's a collection of stories. And this one is about the auto industry's supply chain, consumer behavior, and the lag between wholesale and retail data. Luna: I think a lot of our listeners appreciate that kind of granularity. And speaking of appreciation—Lucas, I know we try to keep this show free of ads and paywalls. Lucas: Absolutely. That's intentional. The whole Fexingo network is listener-supported. A small group of our audience chips in monthly through buy me a coffee dot com slash fexingo, and that literally funds making these episodes. Luna: It's a simple model. No sponsors, no tracking, no pressure. If you find value in what we do here, that's the way to keep it going. But if not, you're still welcome to listen every day. Lucas: Exactly. And it's because of that support that we can spend time drilling into a topic like used car CPI instead of chasing clickbait. So, back to the data—one more thing I want to flag. Luna: Go ahead. Lucas: The ten-year breakeven inflation rate, which is a market-based measure of expected inflation, has been drifting down. It was at two-point-three-six percent as of yesterday, down from two-point-three-eight a week earlier. That suggests bond traders aren't panicking about the used car bump. They see it as temporary. Luna: But if the Fed sees it as temporary too, they might hold steady regardless. The question is whether the data changes their mind. Lucas: Right. And that's why next week's CPI will be so closely watched. If used cars are the only category accelerating while everything else cools, that's a manageable story. But if it spreads to other goods, that's different. Luna: What about the impact of tariffs? There's that recent headline about the U.S. proposing new tariffs on sixty economies over forced labor practices. That could affect auto parts and raise production costs. Lucas: That's a real wildcard. If tariffs raise the cost of imported components, that could push new car prices even higher, which would then push used car prices higher as well. And that would be a supply-driven inflation that the Fed can't fix with interest rates. Luna: So the used car market might be a canary in the coal mine for broader goods inflation. Especially if tariffs start to bite. Lucas: Exactly. And that's why we're watching it. For now, the smart money says used car prices stabilize by the end of the year. But the risks are tilted to the upside. Luna: Alright, we'll be back with a full breakdown of the May CPI report next Wednesday. Until then, keep an eye on those wholesale auction numbers. Lucas: And if you want to support the show, you know where to find us. Thanks for listening.