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 last February.

During the pandemic, used prices really became the talk of the town on the other side of the Atlantic. Prices soared and were the single strongest driving force behind the increasing rate of inflation in the country. How does it happen and why hasn't it happened in Sweden, despite record high second-hand prices?

That Corona affected the world economy is not news. In the US, however, 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 put towards the purchase of a car. Due to long delivery times on 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 one-year-old Mercedes G-class that was SEK 570,000 more expensive than a new one.

Main driver of inflation rate

An inflated used price is not unique in itself for the USA during Corona, however, the way the prices raised the country's total consumer prices is reasonably unique. In Sweden, the rate of inflation has also increased during corona, but while electricity and fuel were the biggest factors, the price increase of used cars was the single biggest driving force in the USA in 2021. It accounted for a contribution of close to 1% to the total inflation, which was then at 4 % (cf. August 2020 to 2021). At the same time, prices on the Swedish used market contributed only 0.04 percent to the increase in inflation.

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

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

First of all, 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 to this, the large government subsidy has stimulated consumption for, among other things, cars, which pushed up used prices when new cars meant long delivery times.

A significant factor in the whole thing is also that in the USA 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 could see substantial price increases on used small cars during Corona. This was due, among other things, to people wanting to avoid public transport due to the risk of infection, but public transport is not at all of the same importance in the United States."

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 USA 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.