Rising Car Prices Bring Relief
Car prices in the US are still rising, but there is some relief as new and used car prices declined slightly. However, repair and insurance costs continue to skyrocket.
Despite recent relief, rising prices for new and used cars continue to be a concern for U.S. consumers. The Bureau of Labor Statistics' July consumer price data revealed a 3.3% year-over-year increase in prices for a basket of consumer goods. While this marks a slight uptick from June's 3.1%, it does break a 12-month streak of decreasing numbers.
Investors, however, found solace in the fact that the increase wasn't substantial enough to warrant the Federal Reserve's intervention in raising interest rates. As a result, the S&P 500 and Dow Jones Industrial Average experienced positive gains of 0.4% in recent trading.
The rise in interest rates has contributed to the soaring cost of personal transportation. In the second quarter, a striking 17.1% of Americans financing a new car found themselves paying $1,000 or more per month. This is a significant jump from the 4.3% recorded in the second quarter of 2019, before the pandemic.
While increased rates play a role, the primary driver behind the heightened expenses lies in the prices of new and used cars. Since the end of 2019, both categories have experienced a staggering 29% surge in prices due to production interruptions and reduced vehicle supply caused by the pandemic.
Fortunately, there is some relief on the horizon as prices for new and used cars have started to decline, albeit slowly. In July, prices dropped by 0.2% compared to the previous year, marking the third decline in seven months.
However, it's not all good news. The costs associated with insurance and repair continue to skyrocket. In July alone, transportation services costs surged by 9.3% year over year, making it the 28th consecutive month of increases.
While insurance and repair costs may lag behind car prices, they inevitably catch up. As the price of a car rises, so does the cost of parts required for repairs and insurance coverage against potential damage.
Transportation services costs have seen a substantial increase of approximately 21% since the end of 2019. It is likely that further increases will be necessary to align with the rising vehicle costs.
These circumstances present a challenge for consumers. However, there is some consolation as the current misery index (inflation rate plus unemployment rate) stands at 6.8 in July. Though slightly higher than June's 6.7, it reflects a significant improvement from the rate of 11.9 recorded a year ago.
With employment rates stabilizing and inflation showing signs of decline, the cost of car repairs, though still considerable, is not likely to break the bank.