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: Used cars and housing costs drove inflation last month


Rental cars, used cars, airfare, beef and domestic services such as cleaning and gardening all have one thing in common: they had the largest percentage increases in price last month, according to the latest consumer price index report.

But they differ significantly when it comes to how much each influenced the 0.6% increase in overall prices for goods and services last month.

For instance, the price of rental cars rose by 7.3% last month. That mattered a lot, or more precisely it accounted for one-third of the overall price level increase for the month, as tallied by the Bureau of Labor Statistics.

In normal times, the price of used cars rarely dictates the overall direction of the total price level across all goods and services.

That’s because used cars aren’t considered a very important part of Americans’ typical expenditures.

In contrast, housing costs, which are one the biggest expenses for most Americans, are assigned a high “relative importance” value by the BLS. That means that a much smaller increase in overall housing costs can easily drive the overall direction of the price level.

Case in point: Last month, housing costs rose by 0.4% and accounted for just over a quarter of the overall increase in May.

But airfare prices, which rose by 7% compared to last month, hardly had any effect on the overall price level because they’re considered an even less important part of Americans’ typical expenses than used cars are. The same applies to beef and household services.

The general consensus going forward is that used vehicles will lose their ability to sway the direction of the overall price level. 

That’s because eventually, the supply of used cars will catch up with demand. 

Right now, used cars are in short supply because Americans purchased record numbers of them during the pandemic. And new cars aren’t getting produced as fast as usual due to chip shortages.

In April, the average price of a used car soared to an all-time high of $25,463, according to research firm J.D. Power. That’s more than $2,000 higher than the average used car price was in April of 2020, and it was the first time the average price of a used car exceeded $25,000.

Related: Used-car prices surpassed $25,000 for the first time. How to snag a good deal

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