The Potential Impact of UAW Strikes on Inflation Trends
Barclays warns that the ongoing United Auto Workers (UAW) strike poses a risk to the fight against inflation. The strike, which has affected plants across major automakers Ford, General Motors, and Stellantis, could further reduce already low levels of auto inventories, according to analyst Pooja Sriram. This, in turn, may exert upward pressure on auto prices, which have played a significant role in persistent inflation pressures.
Risks to Core Inflation and Used Car Prices
Sriram suggests that the risks to core inflation are likely to materialize primarily in used car prices if there is a sharp drawdown in inventory. Used car prices, accounting for 3.5% of core CPI (but only 0.5% of core PCE), tend to be sensitive to new car inventories, especially in the post-pandemic period where car inventories are tight and new car prices are substantially elevated. However, Sriram notes that the strike is not expected to impact auto prices until October.
Promising Slowdown in Inflation
Recent inflation readings have shown a promising slowdown in year-over-year growth. After reaching a peak of a 9% year-over-year increase in June 2022, prices have consistently trended downward. In August, the consumer price index increased by 3.7% from the previous year, slightly higher than July's 3.2% increase. However, the rise in August was largely driven by a sharp jump in energy prices, which many economists anticipate to be a temporary disruption.
Impact on Vehicle Prices and Auto Insurance Premiums
During the pandemic era, prices for both new and used vehicles were among the first consumer goods to exhibit signs of high inflation. Although these levels have moderated, new vehicle prices still rose by 2.9% in August 2023 compared to the previous year. The increase has further strained consumers' budgets, leading to a pass-through effect on auto insurance premiums, which surged by 19.1% in August 2023.
Barclays' current base case scenario anticipates a more prolonged strike targeting additional plants, with end-dates varying from early October to mid-November across manufacturing locations. Sriram estimates that this could potentially drive the year-over-year rise in core CPI to 3.9% in December, with modest spillover effects into early 2024 that would reverse by the end of the year.
In conclusion, while the UAW strikes may pose risks to inflation trends, the expectation is that the Federal Open Market Committee (FOMC) will overlook any short-term boost to core CPI caused by production disruptions. However, if the union negotiates a more generous contract covering not only higher wages but also other benefits, it could be seen as an indication of deep-seated cost pressures that may slow the pace of wage deceleration and supercore inflation.
Note: CNBC's Michael Bloom contributed to this report.
UAW Strikes and Their Potential Influence on Inflation and New Business Formation
The ongoing United Auto Workers (UAW) strike is causing concern for the fight against inflation, according to Barclays. The strike, which has impacted major automakers such as Ford, General Motors, and Stellantis, could lead to a further reduction in already low auto inventories, says analyst Pooja Sriram. This could potentially drive up auto prices, contributing to persistent inflation pressures.
Implications for Core Inflation and Used Car Prices
Sriram indicates that the risks to core inflation are likely to primarily affect used car prices if there is a significant decrease in inventory. Used car prices are sensitive to new car inventories, especially in the post-pandemic period where inventories are tight and new car prices are significantly high. However, the impact of the strike on auto prices may not be felt until October.
The Inflation Slowdown and its Impact
Despite the potential risks, recent inflation readings have shown a promising slowdown in year-over-year growth. However, a sharp increase in energy prices largely drove the rise in August, which economists predict to be a temporary disruption.
Effect on Vehicle Prices and Auto Insurance Premiums
Prices for both new and used vehicles were among the first consumer goods to show signs of high inflation during the pandemic. This increase has strained consumers' budgets and led to a surge in auto insurance premiums.
In the event of a prolonged strike, Sriram estimates this could potentially drive the year-over-year rise in core CPI to 3.9% in December, with modest spillover effects into early 2024.
For new businesses, particularly in the auto industry, these inflationary pressures could present significant challenges. However, those capable of adapting to these market conditions may find opportunities for growth and success.
.svg)
