There was more bad news on the disinflation front Tuesday, and you could plausibly suggest it was more important than anything Jerome Powell said on Capitol Hill.
The Manheim used vehicle index rose a third month in February, consistent with a mid-month reading that indicated January’s momentum hadn’t necessarily waned.
The 4.3% increase was the largest full-month February gain since 2009. The jump was “driven partially by the seasonal adjustment,” the report noted. Unadjusted, the increase was 3.7%.
Manheim said values from its market report “saw increases that were not typical,” as conversion rates were “above normal for the time of year,” suggesting sellers enjoyed more pricing power than usual.
That’s not consistent with any sort of disinflation, and I’d note that the color accompanying this month’s report sounded quite a bit like January’s color. Any gains on the Mainheim gauge will take two months (give or take) to manifest in the official inflation data.
The inexorable rise and subsequent decline on Manheim’s index was scrutinized by market participants during the pandemic-era inflation. Moderation in used vehicle prices is a meaningful disinflationary tailwind. Policymakers don’t want to lose it.
On a YoY basis, the index fell 7% in February. That’s still a lot, but nowhere near the scope of recent deep declines.
Obviously, it’s been a rollercoaster ride, and the volatility is now manifesting in a perilous dynamic for Americans caught up in a hopelessly distorted market.
The key takeaway from the above is straightforward: This is another example of the Fed losing momentum on the way down to what increasingly looks like an unrealistic goal.
In my opinion, the concern isn’t so much that various disinflationary tailwinds are fading as much as it is that there’s no evidence of moderation in services ex-housing to offset the loss of momentum in other categories.
Take it for what it’s worth. I can guarantee that at least some Fed officials noticed.
Related: Trapped Underwater — America’s Looming Used Car Crisis
