US Wholesale Used Car Prices Surge Amid Tariff Impact

According to a report by Reuters, a measure of wholesale auction prices for used cars in the United States has risen again, marking its largest annual increase in nearly three years last month. This increase is attributed to the fluctuations in vehicle prices and sales caused by the import tariffs on cars implemented by President Trump. The measure had previously accurately predicted the surge in inflation following the COVID-19 pandemic. The Manheim Used Vehicle Value Index, released by Cox Automotive on July 8, reported a seasonally adjusted value of 208.5 for June, reflecting a month-over-month increase of 1.6% and a year-over-year increase of 6.3%, the largest annual rise since August 2022. The index has been on an upward trend for the past year and is currently at its highest level since October 2023. Jeremy Robb, Senior Director of Economic and Industry Insights at Cox Automotive, stated, "The volatility in wholesale price appreciation trends in the second quarter of this year has intensified, as tariff policies significantly impacted new car sales and supply, which in turn affected the used car market." It is generally expected that price pressures for used cars will ease in the second half of the year; however, Robb mentioned that current retail auto sales remain slightly above the levels of previous years, and the supply of vehicles entering the used car market from expiring leases continues to decline. "These two factors should provide substantial support for maintaining high used car prices," he added. The 25% tariff on imported cars imposed by the Trump administration triggered a buying spree in the spring as consumers rushed to purchase vehicles before potential price increases due to the tariffs. Despite the current overall inflation trends contradicting most economists' predictions, many Federal Reserve officials remain convinced that some form of price increases may follow, and they are cautious about lowering interest rates until they are confident that the risks have been eliminated. In recent years, the Manheim Used Vehicle Value Index has drawn the attention of private economists and some Federal Reserve officials, who view it as an early indicator of more severe and persistent inflationary pressures during the economic recovery from the COVID-19 pandemic in 2021-2022. The index began to rise sharply at the end of 2020 and continued for over a year. By mid-2022, the overall inflation rate in the U.S., as measured by the Consumer Price Index (CPI), had surpassed 9%, reaching its highest level since the 1980s. Federal Reserve Governor Christopher Waller warned in the fall of 2021, "Do not selectively ignore the data - whether it’s used car prices, food and energy prices, or household inflation expectations surveys. All of this data conveys important information about inflation dynamics, and people should treat the data cautiously and avoid easily dismissing it as anomalies." At that time, Waller was arguing for the necessity of interest rate hikes to combat the intensifying inflation, while some of his colleagues considered this inflation to be "transitory." However, Waller, who is seen as a potential successor to Fed Chair Jerome Powell, is now more concerned that the tariff hikes will suppress demand rather than trigger a new round of persistent inflation. Recently, Waller expressed support for a rate cut as early as the July Fed meeting.