Inflation has impacted a lot of things, but it’s really hurt the car market for American consumers. Will it ever go back to normal?
New vehicle prices have been incredibly high since inflation took hold. Unfortunately, they’re only expected to remain high in the future.
Fortunately, the cost of used vehicles should balance out. This will happen as the Federal Reserve keeps raising interest rates to offset the impacts of inflation.
As the interest rates continue to rise, the cost of both new and used vehicles is expected to remain high over the next 12 months, according to Local Syracuse.
Why has inflation made the prices in the car market so high?
Prices jumped during the pandemic for various reasons. There were major supply chain issues at play, with a shortage of semiconductor chips. These chips are necessary to keep smartphones, refrigerators, televisions, cars, and many other things running.
As the shortage for new cars grew, people held onto their current vehicles for longer than they normally would, shrinking the used market. This made prices in that market even higher.
The chips that are currently available are being used to create luxury vehicles and SUVs, which cost a lot more for the consumer.
What will happen in the future all depends on consumers and how in demand cars really are. Higher interest rates could lower buyer demand, which would give more options to potential buyers, drawing them in.
The amount of cars available may never return to normal. Before the pandemic, there were 3.5 million new cars. Now, there are just 1.2 million as of August, 2022.
Less inventory has been good for dealers, but they would still like their inventory to be a bit higher.
The cost of used cars is very slowly going down due to dealers paying less for their inventory at auctions in recent months. This is good news, because people have been paying new car prices for used cars due to the scarce inventory.