Behind the Wheel
Back in mid-June, the Federal Reserve increased its inflation forecasts for 2021 and said it could raise interest rates as soon as 2023. Inflation is expected to rise to 3.4% this year, more than the Fed’s prior inflation forecast of 2.4% in March. Furthermore, previous Fed projections indicated that the first interest rate rise would not occur until 2024 — is the economy overheating faster than expected? Well, before this can really be understood it is key to understand what is the causing the inflation. There are multiple factors at play, but one of the largest reasons is used cars. So how do cars create inflation? Well, used cars have been in high demand this year, in part because of a shortage of new cars which occurred due to the pandemic and the severe global shortage of semiconductors – pushing prices up.
More specifically, the shortage slowed supply chains and forced manufacturers to limit production even though there are so many willing to buy. However, it is possible that the trend is reversing now, and prices will reduce back down to reasonable levels – given due time. This is because in recent weeks the buying frenzy has slowed. In turn, inventory at used car lots has risen back to normal levels, and demand at wholesale auto auctions is less intense than it was back in spring of this year. What do you think about the auto-shortage, and will we really see prices return to normal anytime soon?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.