CPI: Auto prices moderate in 2023, with disinflation hitting new vehicle prices
Used vehicle prices continued to drop in 2023, though volatility in price drops are moderating.
Vehicle prices continued to moderate in December, and for 2023 in general, as volatility slipped away from the once red-hot auto market.
The Consumer Price Index (CPI) showed prices in December came in hotter than expected, with a 0.3% jump for the month, and a 3.4% gain for 2023. However, the auto market came in much cooler, with prices for new vehicles rising 0.3% for the month, but only 1% year over year. The 2023 yearly figure was a big drop compared to last year’s 5.9% jump, as disinflation hit the sector. Elevated overall MSRPs and higher financing costs resulted in automakers and dealers having to use incentives to cut prices and move inventory — which just hit a three-year high, according to Cox Automotive.
The used car market not only saw prices moderating, but also deflation for the sector that soared in the pandemic. While used vehicle prices climbed 0.5% in December, a trend seen in recent months as the market reaches some stability after falling considerably, the year-over-year figure slipped 1.3% in 2023, after falling a whopping 8.8% in 2022.
The same trend occurred in the used wholesale market, or auction market, which is considered a leading indicator for used vehicles. The Manheim Used Vehicle Value Index, which tracks used vehicle prices paid at wholesale on a seasonally adjusted basis in the US, ended the month of December down 0.5% compared to November. For the year, used wholesale prices fell 7.0% compared to a year ago, and are now down 21% compared to 2021.
“December’s decline brought a volatile year to a close,” Jeremy Robb, senior director of economic and industry insights for Manheim parent company Cox Automotive, said earlier this week. “The 7.0% year-over-year loss was larger than our original forecast, but it pales in comparison to the nearly 15% decline we had a year earlier.”
Automotive research site Edmunds sees new vehicle prices continuing to fall in 2024 as well. “The COVID-19 pandemic spurred a series of significant vehicle price hikes, first from consumers leveraging low interest rates to buy larger, well-equipped vehicles and later from out-of-whack demand due to supply shortages,” Edmunds experts said in the firm’s 2024 look-ahead report. “But Edmunds data reveals pricing has peaked, as improved inventory has driven incentives back into the market.”
One worrying trend for owners of all types of vehicles were motor vehicle insurance prices. December's CPI report shows premiums for motor vehicle insurance soared 20.3% from a year ago, which is the category’s biggest gain since 1976, per Bloomberg. Motor vehicle insurance premiums have been seeing the highest annual inflation rates over the past few months compared to other categories, continuing a trend that saw premiums jump 14.2% in 2022.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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