Used-car prices are steadily rising, giving the Federal Reserve more reason for concern about inflation.
On Friday, Cox Automotive released its Manheim used-vehicle pricing index, which tracks the average prices dealers pay at auctions. For the first 15 days of February, the index increased 4.1% compared with the level for all of January, marking the largest gain since October 2021. Prices have been increasing since November; December’s reading was 0.8% above the figure for the prior month.
That broke a streak of declines that stretches back to mid-2022.
New and used motor vehicles were allocated an 8.1% weighting in the consumer price Index last year. That’s much lower than housing, at 44.4%, but beats the figures for items such as apparel and furniture.
The next consumer price index report comes out on March 14.
Rising prices for cars show the challenge the Federal Reserve faces as it fights inflation by raising interest rates. In January, the annual increase in the CPI declined by 0.1 percentage points to 6.4% from 6.5%.
An increase in the annual rate for February would put increased pressure on the bank to raise interest rates again, perhaps by more than expected, at the next meeting of the Federal Open Market Committee, on March 21 and 22.
Recent economic indicators have been surprisingly strong, an indication that the Fed has some distance to go in its effort to remove upward pressure on prices by reducing demand for goods and services. Retail sales climbed by 3% in January, beating expectations of a 1.7% rise. Nonfarm payrolls increased by 517,000 last month, up from a gain of 223,000 jobs in December and more than double the amount economists had expected.
Investors still generally expect the Fed to raise rates by a quarter of a percentage point, or 25 basis points, at its March meeting, but that consensus is beginning to wobble.
“Rumblings of a 50-basis-point interest-rate hike at the next FOMC meeting have emerged,” Louis Navellier, founder of growth investing firm Navellier & Associates, said in a research note Thursday.
Traders put the odds of a 50-basis-point increase in March at 18.1% on Friday. That is up from a 15.1% chance Thursday, according to the CME FedWatch Tool.
Write to Karishma Vanjani at email@example.com