One shocking chart shows used-car prices jumping another record amount in May, highlighting the strange gaps in the economy’s recovery

Used car sale dealership
Sale signs lie on vehicles at a General Motors Chevrolet dealership July 6, 2005 in Ferndale, Michigan.

  • Used-car prices likely jumped yet again in May, UBS says, following a 68-year record in April.
  • Used cars have been one of the primary drivers of increased consumer inflation.
  • It’s one strange part of the puzzle that is America’s economic recovery from the pandemic.
  • See more stories on Insider’s business page.

If you’re in the market for a used car, be prepared for some sticker shock. Prices are projected to have skyrocketed again in May, and that boom is probably going to be a primary driver of increased inflation.

A note by a group of UBS researchers, led by Alan Detmeister, forecast a 10.8% price increase. That’s even higher than April’s record-breaking surge of 10%.

used car prices jump
Chart via UBS.

Those pre-owned cars are adding significant mileage to inflation in the US. UBS projects that core Consumer Price Index (CPI) will have another “massive” rise in May; simply put, that means things got even more expensive. That follows a 13-year high in April. In both April and May, the increase is “heavily driven” by used car prices, according to UBS.

Used cars are just one of a myriad of shortages throughout the US economy, part of the country’s strange rollercoaster of a recovery. A global computer-chip shortage has wreaked havoc on the automotive industry, potentially costing it up to $110 billion just this year, Insider’s Dominick Reuter reported. Those chips are used for everything from car engines to Bluetooth capabilities. That’s slowed production of new cars – right when Americans are itching to buy them, as Insider’s Katie Canales reported.

“With pressures on the used car market, along with returning demand for travel, we expect further increases in these categories in the coming months,” the UBS researchers write. They also expect “solid” price increases for new cars and apparel.

Another shortage could be holding up economic recovery

Last week brought the May jobs report, which tracked payroll gains for the month. It showed signs of labor-market acceleration, as Insider’s Ben Winck reported, with the unemployment rate dropping. However, the number of payrolls added came in below expectations.

A separate UBS note from researchers led by Andrew Dubinsky said jobs are rebounding slower than expected because of shortages – “temporary labor supply bottlenecks implied by strong wage gains are slowing growth.” For instance, the youngest workers, who are 16 to 24, saw declines, which UBS attributes to them potentially returning for in-person schooling.

So something else is getting more expensive: The amount that workers get paid. Employers are forking over more money to try and get workers to join their workforce.

As the UBS researchers write, “Annualized leisure wage growth of around 20% in the past three months suggest the recovery is being held back by labor supply.” That wage growth signals that labor-market-supply issues will be temporary, UBS said.

But it’s not just a matter of wages keeping people out of the workforce. Some unemployed workers are rethinking work and what they want out of it, while others struggle with a labor mismatch – the jobs that are open don’t necessarily fit with their skills, or previous experience. Despite all of that, it doesn’t appear that increased unemployment benefits kept workers from returning in May. In 25 GOP-led states, governors have prematurely announced an end to federal benefits to get workers back, but, as Insider’s Ayelet Sheffey reported, they returned regardless.

And, of course, there’s still an ongoing pandemic. UBS, which is “optimistic” about labor force participation in the coming months, notes COVID fears may subside. That’s one factor that may have been keeping older workers from returning.

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Used-car prices just saw their biggest monthly price increase in at least 68 years, UBS estimates

Coronavirus Car Dealership
  • Used cars are the latest product seeing a record price increase from a supply shortage.
  • Researchers at UBS found that used-car prices may have shot up by 8.2% to 9.3% in April.
  • UBS estimates that’s the largest monthly price increase in 68 years of tracking used cars.
  • See more stories on Insider’s business page.

The latest commodity seeing a price squeeze amidst shortages and high demand is used cars.

A note from UBS researchers led by Alan Detmeister found that not only did used-car prices climb in April, but the monthly price increase could be the largest in 68 years of tracking. It looks like prices may have risen by 8.2% to 9.3%.

Used cars have been in high demand due to a few of the factors driving the shortages all over the American economy. The economy is reopening, people are ready to spend money (perhaps from new stimulus checks), and they want cars – especially as more suburban areas boom with wealthy transplants. But new cars are being hit by a computer chip shortage that’s hitting the automotive industry hard.

As Insider’s Grace Kay reported, semiconductor shortages could cost automakers billions, and has already led to lower production rates for new cars. Even Elon Musk has said that Tesla’s suffered from supply chain and semiconductor woes. Cue a used-car boom, with the market heating up and trade-ins fetching higher prices.

chart showing used car prices skyrocketing
Chart via UBS Evidence Lab.

According to UBS, prices on used cars may only climb in the coming months, due to a lag in wholesale to retail pricing. New car prices are also likely to pick up, increasing by 1%.

Why there are so many shortages, and which ones may pick up next

It may seem that everywhere you look, a new product is in a shortage. Chicken, diapers, corn, gas, furniture: The list of shortages goes on, and will likely only grow amid economic reopening. That’s due to some of the same factors impacting used and new cars. Supply-chain issues have persisted throughout the pandemic, and factories shuttered for safety reasons need to crank back to life as demand steepens.

Read more: The processor shortage that made the PlayStation 5 and some cars harder to find was almost over – until a ship got stuck in the Suez Canal. Here’s why it’s likely to get even worse.

The climate crisis also has a role, with several domestic products in the US – such as plastic and gas – impacted by factors including the devastating winter storms in Texas. Droughts are impacting the worldwide corn supply amidst high demand; Insider’s Will Daniel reports that corn prices have jumped 142% in the past year.

UBS projects 12-month headline Consumer Price Index (CPI) inflation rising to 4.3% from 2.6%, “an enormous surge over just the past few months.” Economists’ median estimate for April CPI is 3.6%, per Bloomberg.

Screen Shot 2021 05 06 at 11.02.36 AM
Chart via UBS Evidence Lab.

UBS projects hotels and airfares will be next to see substantial price increases. Axios reported – in an article aptly titled “Our crazy, booked-up summer” – that summer travel in the US is about to boom, with a particular emphasis on domestic travel.

A recent report from the US Travel Association found 72% of Americans are planning a summer vacation in 2021; that’s compared to 37% last year. That probably won’t help the already intense rental car shortage.

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