They consider car prices as an inflation risk

Economists expect a solution to the supply chain crisis in 2022

Auto dealerships in the United States are facing great buying demand.

From the source

Economists in the United States expected a solution to the supply chain crisis for all kinds of goods, and a decline in the problem of shortage in the supply of goods, especially cars, during 2022, with the slowdown in prices that witnessed a significant increase during 2021.

The forecast comes at a time when US car dealerships are facing huge buying demand, with a noticeable shortage of supply, as a result of a scarcity of computer chips, and disruptions to production processes and supply chains.

And this problem does not affect only car buyers, but it poses a challenge to economic policy makers who seek to control the fastest inflation that hit the economy in four decades, by curbing car prices.

Inflation rate

Car prices helped boost the inflation rate sharply during 2021, and economists said they are counting on them to stabilize commodity prices, and even to ensure that inflation declines in 2022.

But the American newspaper "New York Times" says that it is not clear to what extent the rate of decline in car prices will reach, due to the recurring problems that threaten the market, despite the presence of early signs such as the prices of used cars, which are not expected to rise at the same pace as last year.

The chief economist at Cox Automotive, an industrial consultancy, Jonathan Smok, said that the goal of countries in closing was to contain the “Covid-19” pandemic, but computer chip factories in Japan were disrupted, and the effects of the truck drivers’ strike in Canada, and the war in Ukraine later appeared, This slowed production.

Smok expected that the prices of new cars will continue to rise this year.

Prices drop

In turn, UBS chief economist, Alan Dietmeister, predicted a 15% drop in used car prices by the end of the year, with new car prices falling from 2.5 to 3 percent.

The founder of the "Inflation Insights" research company, Amir Sharif, also expected an improvement in supply and a slowdown in demand, which would help the used car market achieve a balance.

“I would be shocked if the used car market really accelerated,” Sharif said, noting that new car prices are more complicated, and there are serious inventory problems.

supply problems

Automakers are struggling to increase production, which has been dented by Russia's invasion of Ukraine, and by shortages of electrical components needed to make cars, including electronic chips, which are in short supply.

The American companies, "Ford" and "General Motors", temporarily closed some US factories last week, due to supply problems, as companies cannot ship cars that consumers want to buy.

booming demand

Meanwhile, demand is booming, with Ford reporting record retail car orders in March 2022. Automotive demand could dip when the Fed raises interest rates again, raising the cost of auto loans, but So far, there are little indications of this happening.

negotiation space

In addition, an analyst at Autoforcast Solutions, Joseph McCabe, expected higher prices, with less negotiating space for consumers, due to high demand and unavailability of the commodity.

He believed that if car prices continue to rise, it will be difficult for the inflation rate to moderate as much as economists expect to around 4 to 4.5 percent, down from 7.9 percent in February.

"We're going to see some deflation in commodities, and I expect fuel prices to come down, and we'll see a modest decline in car prices," said Laura Rosner-Warburton, economist at Macropolicy Prospectiv.

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