Tariffs Drive Up Prices of Used Cars in the U.S., Inflation "Leading Indicator" Turns Red Again

According to the Zhitong Finance APP, a U.S. wholesale price index for used cars, which accurately predicted the surge in inflation after the COVID-19 pandemic, has risen again, recording the largest annual increase in nearly three years last month. This upward trend is closely related to the market fluctuations caused by the automobile tariff policy implemented by the Trump administration.

According to data released on Tuesday, the Mannheim Used Vehicle Value Index rose 1.6% month-on-month in June, and surged 6.3% year-on-year, marking the largest annual increase since August 2022. The index currently stands at 208.5 points, showing a continuous upward trend for a year and reaching its highest level since October 2023.

Jeremy Robb, Senior Director of Economic and Industry Insights at Cox Automotive, who compiles the index, stated: "Wholesale price fluctuations intensified significantly in the second quarter, with tariff policies severely impacting new car sales and supply, which in turn affected the used car market."

Although car prices typically stabilize in the second half of the year, Robb pointed out: "Current retail auto sales are still hotter than in previous years, while the supply of vehicles entering the used car market from lease expirations continues to decrease. These two factors will continue to support rising car prices in the future."

The Trump administration's policy of imposing a 25% tariff on imported cars prompted consumers to rush to buy new cars in early spring this year to avoid anticipated price increases. However, this buying frenzy significantly cooled in May and further shrank in June.

Despite the current overall inflation level not meeting most economists' expectations, many Federal Reserve officials remain convinced that price pressures may resurface, thus maintaining a cautious stance on interest rate cuts until risks are confirmed to be eliminated.

The Mannheim Index has garnered significant attention from economists and Federal Reserve officials in recent years. The index was one of the first to signal the subsequent sustained high inflation during the early stages of the economic recovery in 2021-2022. The index, which began to surge at the end of 2020, continued for over a year, leading to a year-on-year increase in the U.S. CPI exceeding 9% in mid-2022, the highest level since the 1980s.

Federal Reserve Governor Waller warned in the fall of 2021: "It is unwise to selectively ignore any data—whether it is used car prices, food and energy prices, or household inflation expectation surveys. These data contain important information about the evolution of inflation, and it is foolish to dismiss them as outliers." At that time, Waller advocated for interest rate hikes to address inflation pressures that some colleagues viewed as "temporary."

However, now Waller, seen as a leading candidate to succeed Powell, is more concerned that tariff policies may suppress demand rather than trigger sustained inflation. He recently expressed support for initiating interest rate cuts as early as the meeting in late July