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It turns out that all of those dissonant voices that recently came forward to warn about a nightmarish inflationary spike while no one believed them were right after all. Right now, US consumers are facing a shocking price surge all across the board. However, industry specialists say the worst is yet to come. That’s painful to even imagine because we’re seeing acute price increases already. In particular, vehicle prices have shot up to extraordinary highs over the past few months. The spike has been fueled by a global shortage of semiconductors, which collapsed production, and resulted in perilously low inventory levels all over the country. Part of the demand shifted into the used vehicle market, and that also caused a staggering jump in prices for used cars. In fact, the latest data show that during the month of October, used vehicle prices have escalated at a pace that we have never seen before in our entire history.
Last month’s used car price growth managed to shock even the experts. According to the industry’s key index, in October alone, used vehicle prices soared another 9.2%, which puts the index 38% higher than a year ago — compared to 27% in September. If used vehicle prices escalated by 9.2 percent over the year, that would already be quite problematic. The fact that massive increase happened in just one month is truly breathtaking. Overall, used car prices rocketed by 38% from the already sky-high levels last October. But compared to October 2019 levels, prices soared by an alarming 59%. That means if you bought a new car over the past couple of years, right now it could potentially be worth more than when it was brand new.
If that doesn’t scream “hyperinflation” to you, then you need to look again. The irony of all is that October is known as the month when used vehicle prices usually go down. According to Manheim Index data, “October typically sees above-average vehicle depreciation and therefore used price declines”. This October was the first October in the history of the index, which dates back to 1997, that a major price increase has occurred in October. Given that consumer demand remains as strong as ever, industry experts say that prices aren’t going to drop any time soon. At this point, we are witnessing rampant inflation in several sectors of our economy. Sharp price hikes are hitting food products too, with some items facing a four-fold increase year-over-year.
In a recent article published by The Wall Street Journal, supermarket owners disclosed that customers are “purchasing more store-brand meat products and trading down from beef to less-expensive alternatives such as chicken or pork,” after prices for items such as rib-eye soared almost 40% from a year ago, according to research firm IRI. Many consumers are replacing boneless chicken breast with cheaper bone-in chicken, the retailers revealed. As food prices continue to escalate, some grocery store owners are reporting high rates of shoplifting. And some big retailers are reinforcing security to prevent food deliveries from being hijacked.
We’re in the middle of the worst supply chain crisis in modern times, but new measures issued by the government are only aggravating the situation. That’s one of the main reasons why prices are starting to spin out of control. Every time congestion eases, a new disruption emerges and the crisis worsens again. To make things worse, as we head to what is projected to be another very cold winter, heating bills are expected to face an unwelcome uptick in the coming months. Needless to say, with consumers already coping with the fastest price increases in decades, a rise in the cost of basic household necessities will make millions of families suffer financially. According to the Census Bureau, twenty-nine percent of the population have reported reducing or forgoing household expenses to pay an energy bill in the last year.
Last month, the Energy Information Administration warned that the cost of heating oil is forecasted to go up by approximately 43% compared to last year due to higher than expected fuel costs as well as more consumption of energy due to a colder winter. The agency also forecasts propane costs to jump by 54%, while natural gas costs climb by 30% and electricity costs to rise by 6%. We will be extremely lucky if things do not get that crazy in the coming months. This is going to be an undeniably difficult winter for millions of American families. Our problems will extend well into 2022. That is to say, we should get ready for higher inflation, more supply chain disruptions, and generalized chaos all over the economy. And the worst part of this is that nobody in Washington seems to have a plan to save us from this unprecedented mess.
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