- Inflation accelerated to a new high.
- Consumer sentiment is boosted by lower gas prices.
- Consumers’ attitude toward car buying improves
Inflation accelerated in June, according to the Consumer Price Index (CPI). The year-over-year inflation rate hit 9.1%, the highest since November 1981. Key categories that consume a sizable portion of consumer budgets, such as food, rent and gasoline, saw significant gains. Vehicle prices also added to June’s inflation reading, although Cox Automotive data covering used prices indicated declining values in June.
Retail sales in June increased more than expected as the consumer continues to spend despite inflation pressure. Spending remains robust on a nominal basis. Adjusted for inflation, retail sales were down 0.5% from a year ago.
Consumer credit growth slowed in May. Auto loan performance was mixed in June, but auto defaults remain low. Auto credit access was little changed in June.
Consumer sentiment is up so far in July as gas prices are declining from record levels in mid-June.
Inflation soars: Inflation, according to the CPI, accelerated in June, delivering year-over-year inflation that was the highest since November 1981. The headline aggregate measure increased 1.3% on a seasonally adjusted basis, which was up substantially from the high 1.0% monthly increase in May. The core CPI, which excludes food and energy, saw a rise of 0.7%, up from 0.6% in May.
Increases were broad based, but several categories that consume the highest share of household budgets saw large increases in prices in June, such as food (1.0%), rent (0.6%), gasoline (11.2%), new vehicles (0.7%) and used vehicles (1.6%). On a year-to-year basis, the core CPI decelerated to 5.9% from 6.0% in May. The overall CPI accelerated to 9.1% from 8.6% in May. The categories with the most significant year-to-year increases in May were fuel oil (99%), motor fuel (60%), airline fares (34%) and eggs (33%).
Within the CPI, vehicles saw lower year-over-year inflation, with new vehicles slowing to 11.4% vs. 12.6% in May and used vehicles slowing to 7.1% from 16.1% in May. However, unlike the CPI, Cox Automotive’s measures covering wholesale and retail indicate that used vehicle prices declined in June.
Consumer credit grew: The Federal Reserve reported that Consumer Credit, excluding housing-related debt, grew by $22.3 billion in May, which was a deceleration from much bigger increases in April and May driven by growth in credit card debt.
Loan performance mixed: Auto loan performance was mixed in June as severe delinquencies increased but defaults declined. Loans that were delinquent by 60-days or more increased 6.1% and were up 30.7% from a year ago. In June, 1.48% of auto loans were severely delinquent, increasing from 1.40% in May. Compared to a year ago, the severe delinquency rate was 36 basis points higher. In June, 5.75% of subprime loans were severely delinquent, increasing from 5.36% in May. The subprime severe delinquency rate was 154 basis points higher from a year ago.
Higher delinquencies are still not leading to pre-pandemic levels of defaults, and defaults declined again in June. Loan defaults declined 5.4% from May but were up 9.0% from a year ago.
Credit available: Auto credit access was little changed in June. Our Dealertrack Credit Availability Total Loan Index declined 0.1%. Most loan channels were little changed in the month, but we saw more variation by lender type with banks and captives tightening and auto-focused finance companies loosening.
Retail sales rose: Retail sales increased more than expected in June, as consumers are spending more at the pump but not pulling back as a result. The initial estimate showed a total monthly increase of 1.0% when an increase of 0.9% was expected. This followed a downwardly revised decline of 0.1% in May.
The auto sector underperformed as sales excluding motor vehicles and parts increased 1.0% while sales of motor vehicles and parts increased 0.8%. More categories were up than down. Building material and garden equipment (-0.9%), clothing and clothing accessories (-0.4%), general merchandise stores (-0.2%), and health and personal care stores (-0.1%) were the decliners. Gas stations (+3.6%), non-store (ecommerce) retailers (+2.2%), miscellaneous (+1.4%), and furniture, home furnishing, and electronics (+1.0%) were the largest gainers. Retail sales were up 8.4% year-over-year on a nominal basis.
Compared to last year, only furniture, home furnishing, and electronics (-1.1%), health and personal care (-0.6%), and clothing and accessories (-0.2%) were down. The biggest year-over-year gainers were gas stations (+49%), miscellaneous stores (+15%), and food services and drinking places (+13%). Retail sales are measured in dollars, so higher inflation plays a role in the increases being measured. Adjusted for inflation using the CPI, retail sales in June declined 0.3% and were down 0.5% from a year ago.
Consumer sentiment improves: The initial July reading on Consumer Sentiment from the University of Michigan increased 2.2% to 51.1. The improvement was from consumers’ view of current conditions as future expectations declined slightly. Also notable, the expected inflation rate in five years fell to 2.8% from 3.1% in June. Consumers’ views of vehicle buying conditions increased to the best level since April. The daily index of consumer sentiment from Morning Consult has also increased so far in July. The index is up 1.2% for the month so far. Sentiment has improved as gas prices have been falling. The average price of unleaded nationally was $4.58 Thursday, down 8.8% from its peak in June.
Jonathan Smoke is chief economist at Cox Automotive.