U.K. Used Cars Drive Inflation With Record Price Rise

(Bloomberg) -- Used car prices rose the most on record in the U.K. last month, driving inflation higher as consumers splashed out to avoid public transport.

The cost of previously-owned vehicles rose 4.4% in June, the most since records began in 1988, and contributed to an unexpected 2.5% annual increase in consumer prices, the Office for National Statistics said on Wednesday. The ONS said consumers were paying more to avoid trains and buses.

The figures show Britain is following a global trend, with car production delays for new vehicles caused by a shortage in semiconductors sending prices surging. In the U.S., used vehicles represented more than a third of the gain in the consumer price figures released Tuesday, and used cars in Japan are trading at decade highs.

“This is happening all over the world because the shortage of new cars is happening everywhere,” said Alessandro Gavazza, a professor of economics at the London School of Economics. “The mechanism that is pushing used car prices up is the same everywhere. It’s just that these forces are stronger in the United States than the U.K.”

U.K. consumers piled into car dealerships that reopened from lockdowns over the past few months, bidding up the price of vehicles that were already in short supply. Demand was fueled by savings built up when businesses were closed during more than a year of restrictions.

“This latest movement comes amidst reports of increased demand as dealers open following the latest national lockdown, together with a global semiconductor shortage affecting the production of new cars, resulting in consumers turning to the used car market,” the ONS said in a statement.

Automakers have built just under 360,000 cars in the U.K. this year through May. While that’s up 39% from a year ago, it’s down 23% from the first five months of 2019.

Car manufacturers have warned the chip shortage that has has constrained output worldwide could worsen in the second half and that semiconductor supply will remain tight for some time.

“Within two years time, we should have enough capacity for the whole industry again,” Volkswagen AG Chief Executive Officer Herbert Diess told Bloomberg Television on Tuesday.

There’s less impact in the rest of Europe. Residual values for cars tracked by Autovista showed no change in Germany in June from a year ago, a 3.1% gain in Italy and 2.8% decline in Spain. The U.K. stood out with growth of 15.3%.

(A previous version of this story was corrected to show the ONS amending the record to show that the second-hand car dataset began in 1988)

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