Few Cars, Lots of Customers: Why Autos Are an Inflation Risk

Few Cars, Lots of Customers: Why Autos Are an Inflation Risk

Mr. McCabe doesn’t think the auto inventory will ever fully recover: Dealers and automakers have learned they make more money by effectively making cars to order and running with leaner inventory. Should this be the case, the permanently restrained supply could have an impact on the rental and used car markets.

If car prices continue to rise at a rapid pace, overall inflation will have a hard time slowing down as much as economists expect — down to about 4 to 4.5 percent, as measured by the CPI, by the end of the year, according to a Bloomberg survey 7.9 percent in February.

Because the prices for services, which make up 60 percent of the index, are also rising sharply. They rose 4.8 percent in the 12 months to February and could remain high or even rise further if the labor shortage bites.

Of the commodities that make up the other 40 percent of the index, food and energy make up about half. Both have recently become significantly more expensive and, unless the trends change, should contribute to high inflation this year. That puts the onus for cooling inflation on the products that make up the rest of the index, such as cars, clothing, appliances and furniture.

While the Fed’s policy changes could dampen demand and eventually slow prices, politicians and economists had hoped they would receive natural help as supply chains for cars and other commodities developed on their own.

“We still expect some deflation in commodities,” Laura Rosner-Warburton, economist at MacroPolicy Perspectives, said of her forecast. She said she expected modest fuel prices and that her call included some “modest drops” in vehicle prices.

Not only economists hope that the forecasts for an increasing supply and more moderate car prices will come true. Buyers and dealers are desperate for more vehicles. Pittsburgh-based Ms. Diehl sells brands including Toyota, Volkswagen, Hyundai and Chevrolet, and companies have told her stock levels may recover towards the end of the year — a respite that seems far off.