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Illustration: Brendan Lynch/Axios

Inflation is at its highest level since 2008, thanks in very large part to a single item whose price has been going through the roof: Cars.

Why it matters: What goes up must generally come down, and there are strong indications — like data last week from prominent used car marketplace Manheim — that the unprecedented rise in auto prices is peaking. In the second half of this year, cars might well be a force making inflation numbers look artificially low.

By the numbers: Used car and truck rental prices rose 12% in June, and 88% from a year previously. Used car prices were up 11% in June and 45% from a year ago, while new car prices were up 2% and 5% respectively.

How it works: The rise and rise of car prices has been one of the dominant inflation narratives of 2021. The cause has been a shortage of new cars, which in turn has been caused by a shortage of the computer chips needed to make any modern car run.

  • Cars need as many as 1,400 different computer chips, each of which has to go through a rigorous quality-control process that ensures it will keep on working for at least 20 years.
  • Lead times for such chips can be as long as 180 days

What they're saying: "These chips are not fungible assets," Tirias Research analyst Kevin Krewell tells Axios. "You can’t just move them to another fabrication facility with spare capacity."

Flashback: Fire and ice have both closed chip plants unexpectedly this year, making it harder for them to reconfigure their production lines to go back to making the auto chips that manufacturers desperately need.

  • Automakers slashed chip orders when the pandemic hit in March 2020, causing chip makers to pivot to making components for uses that were booming, such as webcams.
  • More recently, automakers around the world have been forced to cut production in the face of the shortages. AutoForecast Solutions says the industry faces a loss of 6.2 million vehicles globally because of the chip supply line disruption, while AlixPartners sees a drop of 4.9 million vehicles just in the first half of this year.
  • Volkswagen has warned that the chip shortage could get even worse in the second half of this year.

The big picture: While new-car prices haven't risen enormously (sticker prices are sticky, it turns out), the new-car shortage has meant that car-rental companies, faced with booming demand, have become buyers rather than sellers of second-hand vehicles, upending the market's normal delicate balance.

What's next: Wholesale auto prices seem to have peaked, which means that retail prices are likely to follow them down. Manheim chief economist Jonathan Smoke says that retail prices have been lagging wholesale prices by about 4 weeks this year — and that the decline in wholesale prices started 5 weeks ago.

Expand chart
Data: Cox Automotive; Chart: Axios Visuals

The bottom line: If you're in the market for a car, and you're able to wait a few months, you should probably do that.

Go deeper

Ben Geman, author of Generate
Oct 21, 2021 - Economy & Business

Tesla is outrunning the supply chain crunch

Expand chart
Data: FactSet and company release; Chart: Will Chase/Axios

Tesla, citing a "structural shift" in demand for electric vehicles, reported its highest-ever quarterly profit of $1.6 billion and $13.8 billion in revenues despite supply chain problems.

The big picture: The company's third-quarter report says the chip shortage, port congestion and other woes have affected its factories but argues that "flexibility" and "ingenuity" are a counterweight.

Updated 58 mins ago - Politics & Policy

Trump dogs “dull” DeSantis ahead of potential 2024 matchup

Photo illustration: Sarah Grillo/Axios. Photo: Paul Hennessy/SOPA Images/LightRocket via Getty Images

Donald Trump is trashing Ron DeSantis in private as an ingrate with a "dull personality" and no realistic chance of beating him in a potential 2024 showdown, according to sources who've recently talked to the former president about the Florida governor.

Why it matters: The two are among the most popular Republicans in the country, and as the former president eyes another run in 2024, he's irked by DeSantis' popularity and refusal to rule out running against him.

Updated 59 mins ago - Politics & Policy

Omicron dashboard

Illustration: Brendan Lynch/Axios

  1. Health: Concerns grow over CDC's isolation guidelines — Experts warn of more COVID-19 variants after Omicron — WHO recommends 2 new treatments — What "mild" really means when it comes to Omicron.
  2. Vaccines: America's vaccination drive runs out of gas— Puerto Rico expands booster shot requirements— Supreme Court blocks Biden's vaccine mandate for large employers.
  3. Politics: Vivek Murthy calls SCOTUS vaccine mandate block "a setback for public health" — Focus group says Biden weak on COVID response, strong on democracy.
  4. Economy: America's labor shortage is bigger than the pandemic— — CDC COVID guidance for cruise ships to be optional starting Saturday — The cost of testing.
  5. States: America struggles to keep schools open — Youngkin ends mandates for masks in schools and COVID vaccinations for state workers.
  6. World: Beijing reports first local Omicron case weeks before Winter Olympics — Teachers in France stage mass walkout over COVID protocols.
  7. Variant tracker

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