New and Used Car Prices Show Mixed Trends in January CPI

New and used car prices experienced diverging trends in January's Consumer Price Index (CPI) reading, with used prices continuing to rise significantly.

Used Car Prices Surge

Used car prices jumped 2.2% in January, marking the largest monthly increase since May 2023. This surge reversed a slight downward trend in recent months. Despite this gain, used car prices remain 14.5% below their peak in February 2022. However, they are still 23.6% higher than in July 2019.

New Car Prices Flat

In contrast to used cars, new car prices remained flat in January and declined 0.3% year-over-year.

Overall Price Increases

Overall prices in the US rose 0.5% in January, the largest monthly headline increase since August 2023. Year-over-year inflation reached 3.0% in January.

Factors Driving Used Car Price Gains

One potential factor contributing to the recent increase in used car prices is supply constraints. Manheim's used vehicle value index, which tracks wholesale auction transactions, rose 0.4% in January.

Lower used car inventory levels are likely related to a decline in off-lease vehicles entering the market due to supply chain disruptions in 2021 and 2022.

Seasonality and Future Outlook

Spring is typically a strong season for auto sales. With tax refund money available, consumers may seek deals on current models. This could potentially push used car prices further upward.

Transportation Services Sector

Prices in the transportation services sector, including motor vehicle maintenance and repair and car insurance, continue to rise. Car insurance premiums increased 2.0% in January, contributing to an 11.8% annual gain.

Conclusion

The automotive industry continues to experience price fluctuations. Used car prices are trending higher due to supply constraints and seasonality. New car prices remain relatively stable, while transportation services sector prices continue to climb, albeit at a moderated pace compared to recent surges.