Car Prices Rose More Slowly In January, But New Disruptions Loom

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Want an optimistic take on the troubling January inflation report? Look at what’s happening with cars.

Want a pessimistic take? Look at what’s happening with cars.

New-car prices have skyrocketed over the past year, rising 12.2 percent as supply-chain disruptions and other issues have made it hard for manufacturers to keep up with strong consumer demand. Used-car prices are up by a remarkable 40.5 percent. Those rapid price gains have been a big factor in overall inflation, accounting for close to a quarter of the one-year increase in the Consumer Price Index.

Optimists, including White House officials, have pointed to car prices as evidence that the recent bout of high inflation is likely to prove short-lived. The car market has been disrupted by a confluence of unusual forces, most of them related to the pandemic. As those forces recede, auto production should return to normal, and prices should moderate, or perhaps fall outright.

The data released on Thursday provided support for that narrative. New-car prices were flat in January compared with December. Used-car prices rose 1.5 percent, their slowest pace since September, and data on wholesale prices suggests that moderation is likely to continue. Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note to clients that he expects both new and used vehicle prices to fall in coming months, which would help bring down inflation overall.

But a new development is threatening that progress. Protesters in Canada have blockaded some of the busiest routes linking Canada to the United States, disrupting supply chains of some of the biggest automakers. Ford, Toyota and General Motors have all had to pause production or reduce output at some plants as a result of the protests.

It isn’t clear how long those disruptions will last, or how much of an impact they will have on auto supplies. But if they prevent the car market from returning to normal as quickly as expected, that could delay the moderation in inflation that economists had expected to see and that the Biden administration had been counting on.