Used as an inflation rocket in the USA - Why not in Sweden?

Paying just over half a million more for a used car than a new one. Yes, that was the case in the US in February last year.

During the pandemic, used car prices really became a talking point on the other side of the Atlantic. Prices skyrocketed and were the single strongest driver of the increasing inflation rate in the country. How does this happen and why hasn't it happened in Sweden, despite record high used car prices?

The impact of Corona on the global economy is nothing new. However, in the US, the increase in used car prices came as a shock when they rose by 45% (June 2020 to June 2021). At the same time, we saw an increase of 13% in Sweden.

Used cars more expensive than new ones

During the first half of 2021, a government Corona rescue package was introduced in the USA, which included direct payments to the population. The package meant that almost all Americans would receive aid checks of up to the equivalent of SEK 12,000. This contribution could then be used to purchase a car. Due to long delivery times for new cars, more people turned to the used market, which drove up prices. On average, a used car in 2021 cost 1.3% more than an equivalent new car. The most extreme case was a then one-year-old Mercedes G-Class, which was SEK 570,000 more expensive than a new one.

Main driver of the inflation rate

A spike in used car prices is not unique to the US during Corona, however, the way in which prices increased the country's total consumer prices is somewhat unique. In Sweden, the inflation rate has also increased during Corona, but while electricity and fuel were the biggest factors, the increase in the price of used cars was the single largest driving force in the US in 2021. It accounted for a contribution of almost 1% to the total inflation, which was then 4% (compared to August 2020 to 2021). At the same time, prices on the Swedish used car market contributed only 0.04 percent to the increase in inflation.

But why have used car prices had such a big impact on inflation in the US and not in Sweden?

In the US, there has been very high demand for used cars compared to supply. In Sweden, despite increased demand, we have had a much better balance. There are several factors that influence this, of which the following can be seen as some of the most significant.

First and foremost, there is the global impact that Corona has had on the economy, such as long delivery times for new cars due to semiconductor shortages. In addition, the large government subsidy has stimulated consumption for cars, among other things, which has driven up used car prices when new cars have meant long delivery times.

A significant factor in this is also that in the US, passenger cars play a greater role in households than they do in Sweden. Here, we have shorter distances and can use public transport to a completely different extent.

"Here in Sweden we saw significant price increases on used small cars during Corona. This was partly due to the fact that people wanted to avoid public transport due to the risk of infection, but public transport is not at all of the same importance in the US."

When you look at Sweden's so-called CPI basket, which consists of different groups of goods and services that affect a country's consumer price index, used cars are not one of the major factors. In 2021, used cars in the US had a weight of 2.75 in the so-called CPI basket, compared to 1.06 in Sweden.

Sources: Kvdbil , IseeCars, Teknikföretagen, Federal Reserve Bank of St. Louis, SCB.