From The Hill:
The wholesale price of used cars is falling off a cliff while the retail prices that car shoppers are paying is way up, suggesting dealers are making a killing while consumers are taking a bath.
Used car prices declined 2 percent from September in the first half of October and are down 10.3 percent from a year ago, according to The Manheim Used Vehicle Index published on Monday.
Wholesale used luxury car prices are down 13.5 percent while used sport utility vehicles are down 12.3 percent and pick-up trucks are down 8.4 percent.
Meanwhile, the retail price that car shoppers are paying for used cars has increased 7.2 percent since last year, according to the Department of Labor’s latest consumer price index.
The fact that dealers are paying less for cars than they were a year ago while shoppers are paying more suggests that dealers are holding onto the difference and are driving inflation in the used car market, economists say.
“Dealers don’t have to pass it on. They can make bigger profits,” Claudia Sahm, a former Federal Reserve banker and founder of Sahm Consulting, said in a message to The Hill.
“At the end of the day, inflation and how much prices go up – these are decisions made by businesses. Inflation does not just come down from on high,” she said in an interview. “You’re in a capitalist economy, so whether it’s a small business or corporation, they get to decide when they pass a price increase or a price decrease on.”
“The Fed knows that import prices are falling, producer prices have really decelerated overall, wage growth has slowed down some though there are still labor costs, but disinflationary factors will eventually show up in consumer prices,” she added.
Economist Dean Baker of the Center for Economic Policy and Research (CEPR) said the difference between wholesale and retail prices in the market for used cars “likely is in part margins, but also a lag.”....
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