This edition of the Auto Market Weekly Summary includes updates on both consumer and producer prices, retail sales, and consumer sentiment. This edition of the Weekly Market Summary includes updates on both consumer and producer prices, retail sales, and consumer sentiment. With renewed hostilities in the Middle East, gas prices are climbing again and treasury yields moved higher, though a pullback in technology stocks reversed some of that move. During testimony on the Hill, Fed Chairman Warsh reaffirmed his commitment to taming inflation, which has acted as an unwelcome tax on consumers for the last several years.

Bottom Line Up Front

June’s inflation data offered welcome relief, but much of it was a look in the rearview mirror. The Consumer Price Index (CPI) and the Producer Price Index (PPI) both declined for the first time since last summer, driven primarily by the retreat in energy prices. The underlying picture is more measured: Core CPI was flat and core PPI remained higher by 5.1% year over year. Part of that persistence traces to AI — the same investment boom that Fed Chairman Warsh highlighted in recent testimony. AI infrastructure spend is a standout feature of the current economy and is sustaining elevated cost levels in the high-tech and equipment pipeline.

Against that backdrop, the 30-year mortgage rate rose to 6.55% last week, and Fed funds futures now assign a 49% probability to a rate hike by the September meeting, up from 44% a month ago.

For consumers, the University of Michigan’s preliminary July sentiment reading showed a notable improvement, though most interviews were completed before the resumption of U.S. strikes against Iran. To date, Morning Consult’s daily tracker reflects more recent conditions and tells a more cautious story. Sentiment is down 0.7% so far in July.

For the auto sector, the wholesale market is settling into a more normal pattern after a strong spring. The Manheim Used Vehicle Value Index fell 0.6% from June in the first 15 days of July, with depreciation running modestly above typical seasonal norms. While current depreciation is elevated, the real theme is a return to a more normal trendline as values move closer to longer-term averages.

Consumer Price Inflation

Headline inflation declined in June and was lower than anticipated by market forecasters, as energy goods declined meaningfully. Vehicle-related categories also helped hold inflation down.

  • Overall CPI fell by 0.4% month-over-month in June, a larger-than-forecast decline, with the year-over-year rate falling to 3.5% from 4.2%.
  • Overall energy costs declined 5.7% in the month, led by gasoline prices falling by 9.7% on a seasonally adjusted basis.
  • Unadjusted, gas prices remain higher by 27% year over year, driving most of the energy component’s increase in the CPI.
  • Used-vehicle prices declined by 0.2% on a seasonally adjusted basis.
  • New-vehicle pricing and parts and equipment costs showed no change for the month, after both declined in May.
  • The good news: Insurance costs fell by 2% in the month, continuing to normalize after remaining higher for the last few years.
  • Public transportation costs continued to impact vehicle services inflation, increasing by 0.9% in the month. The gain was driven by transportation within the same city as well as a smaller month-over-month rise in the cost of airfare.
  • Core CPI (ex-food and energy) showed no change in the month, below the consensus of a rise of 0.2%, with the year-over-year rate sliding to 2.6%, the lowest level since February.

Producer Price Inflation

June brought a meaningful break from months of accelerating producer price inflation. Final demand fell for the first time since last summer, pulled lower almost entirely by energy costs declining from spring highs.

  • Final demand fell 0.3% month over month in June on a seasonally adjusted basis, following a revised gain of 0.6% in May and 1.1% in April.
  • Goods prices drove the change by falling 1.4%. Energy fell 6.4%, with gasoline down 12% accounting for nearly two-thirds of the total decline in goods. Diesel fuel, jet fuel, and crude petroleum also declined.
  • Services rose 0.2% from May, with trade services up 0.4%. Transportation and warehousing declined 0.1%.
  • On an unadjusted basis, final demand is up 5.5% year over year, while core PPI (less foods, energy, and trade) rose 0.1% in June and remains elevated at 5.1% year over year.
  • Margins for machinery and vehicle wholesaling declined 8.4% in June, a potential signal of easing cost pressure in vehicle distribution channels.

Retail Sales

Retail sales rose slightly in June, while spending at gas stations decelerated in the month. With lower pump prices, the report showed that spending at gas stations pulled back for the first time since January.

  • Retail sales grew by just 0.2% in June compared to May, with the headline rate higher by 6.7% year over year, slowing from the pace of May.
  • Excluding autos, sales were lower by 0.2%, while core sales (excluding autos and gas) rose 0.4% against the prior month, only half the growth of 0.8% seen in May.
  • Spending related to automotive vehicles and dealers rose 1.9% in June, stronger than the previous gain of 1.1% in May. Retail sales attributed to automotive were up 5.7% year over year in June, the strongest gain in a year.
  • Gas station sales remain higher by 19.8% year over year, but appear to have peaked in May, with the prices declining through June.
Consumer Sentiment

The University of Michigan’s preliminary July reading showed a meaningful rebound, with sentiment climbing to its highest level since February. However, Morning Consult’s consumer sentiment results paint a different picture.

  • The Index of Consumer Sentiment rose to 54.4 in the preliminary July reading, up 9.9% from June and the second consecutive monthly gain. Sentiment remains down 11.8% year over year. All five index components improved.
  • Year-ahead inflation expectations declined to 4.2% from 4.6% in June.
  • Long-run expectations held steady at 3.3%, modestly above the range seen throughout 2024.
  • Morning Consult’s Index of Consumer Sentiment tells a more cautious story, lower by 0.7% so far in July and down 8% against last year.