As we all know by now, inflation spiked to 40-year highs earlier this year and it has remained stubbornly high recently. It was last month’s CPI data that sparked a massive sell-off in stocks to the tune of nearly 15% in about 20 days. Well, tomorrow is the latest CPI report and all eyes will be focused on it, but there could be some better news coming down the road soon and that’s what we want to discuss today.
Used Car Prices Are Collapsing
First off, used car prices were up more than 40% year-over-year this time a year ago, and has been a big part of why inflation has been so high. Remember, used car prices make up about 5% of core CPI, so it can make some big swings overall.
Looking at the Manheim Used Car Value Index data though shows some much better times could be coming for used car prices. What you need to know is this index has been lower five months in a row for the first time and is currently down a record 10.6% year-over-year. It is quite likely this continues to trend lower, which should turn into more of a tailwind for inflation into next year. The bad news (and there’s always bad news), is the government data tends to lag behind the private sector’s data, so we might not see this show up immediately in the CPI data, but we fully expect it to show up over the coming months.
Rents Are Now Falling As Well
The other bit of good news is rent prices are now falling and similar to used cars, by a large amount. Shelter makes up almost 40% of core CPI, and it’s pretty much a measure of rents. So moves here could be quite significant. According to Apartment List, the National Rent Index (their survey of the price of rents nationally) fell 0.7% last month, the largest monthly decline ever. Additionally, this was on the heels of falling the month before, so a trend very well could be emerging. Unfortunately, the government data can be a little late here as well, so this as well could take several months to make its way into CPI data, but we know it is likely coming and will be another major anchor on inflation heading into early next year.
Tomorrow’s inflation data will be very important as always, but whatever happens, remember that better news could be coming eventually, thanks to used car prices and rents.
