A prolonged nationwide strike could put further pressure on already low inventories.
The strike of auto workers in the United States, if it persists and expands, could lead to a rise in inflation.
According to economists at Morgan Stanley, the economy could contract by nearly a full percentage point in the fourth quarter, which would push the full-year 2023 GDP growth forecast down to 1.4% from 1.7%.
But the potential effect on new and used car prices, at a time when inventories remain historically low, combined with a significant wage deal, could also move the needle on inflation.
This represents a worst-case scenario for the Federal Reserve. Policymakers and market participants will not need to be reminded of the role that supply shocks and shortages of chips and other components have played in raising inflation to its highest levels in 40 years.
Rising used car prices have had a disproportionate impact on inflation in the United States. This dynamic has reversed over the past year, but the disinflationary base effects are fading and could quickly turn into inflation in the event of a damaging strike.
Michael Feroli, chief US economist at JP Morgan, is cautious. A prolonged nationwide strike could put further pressure on already low inventories, posing a significant risk to car prices. “Such an outcome will be a further complication for ongoing disinflation as it would end the recent run of weak readings in the CPI component for motor vehicles.”
The transportation sector accounts for about 16% of the U.S. Consumer Price Index, and about half of that is the New and Used Motor Vehicle Index.
The annual inflation rate of used car and truck prices hit a record 45% in June 2021, according to a measure from the Bureau of Labor Statistics, while Cox Automotive’s Manheim Index of used vehicle prices rose by 54% in April of that year.
Both have shown annual deflation since late last year, contributing to slowing consumer price inflation across the country, but the rate of price decline is slowing.
Fewer than 13,000 of the UAW’s 150,000 employees are involved in the strike over wages and benefits, which currently affects one U.S. assembly plant for each company (General Motors, Ford, and Stellantis).
If no agreement is reached, the situation could quickly spread in terms of numbers and locations. Detroit’s Big Three accounted for 43% of new cars sold in the United States last year, according to Cox Automotive, so the disruption is potentially huge.
JP Morgan analysts also warn that a significant wage deal - the UAW seeks a 40% raise over four years - will pose an upside risk to inflation across the industry as some of this will be passed on to consumers.
Others are more optimistic.
Using the 2019 auto workers strike as a proxy, Ellen Zentner and the Morgan Stanley team estimate that higher new vehicle prices could add 0.02% to the monthly CPI. Economists at UBS believe that new and used car prices will increase marginally and that the overall impact on inflation will be limited.
Fed officials are hoping for that. All this happens just when the rise in oil prices is starting to have an impact: oil futures have increased by 30% in the last three months and for the first time since December the annual price variation is positive.
In other words, oil is once again inflationary, not deflationary.
The timing couldn’t be worse, just as the American consumer is also becoming more confident that the fear of inflation is over. The University of Michigan’s Index of Preliminary Consumer Inflation Expectations for September fell to 2.7%, the lowest level since April 2021, and the one-year forecast fell to 3.1%, the lowest level since March 2021.
Original article published on Money.it Italy 2023-09-27 07:00:00. Original title: Gli effetti dello sciopero dei lavoratori dell’auto Usa sull’inflazione
