FIGURES RELEASED last month showed that American consumer-price inflation hit 4.2% year-on-year in April, the highest rate since 2008. Markets were spooked. Investors feared that higher inflation and interest rates could destroy asset values. Then, on June 10th, came worse news, or so it seemed. In May annual inflation rose higher still, to 5%. Prices climbed by 0.6% that month alone. But this time financial markets were sanguine. One reason could be that much of the inflation comes from a surprisingly small part of the economy: the market for used cars.

Economists crunching the latest inflation data have found soaring used-car prices to be the prime culprit behind the surge. About a third of May’s overall month-on-month rise came from the appreciating value of cast-off cars. According to official figures, from the Bureau of Labour Statistics, the prices of used cars and trucks have risen 30% over the past year. Many in the automotive industry think that is an underestimate. The latest index of second-hand values published by Manheim, America’s largest used-car auction business, suggests that prices have increased by 48% over the past year, and rose by 5% between April and May alone. Those of pick-up trucks have sped off fastest, rising by an astonishing 70% in just 12 months. Some Americans report that they are able to sell their cars bought a year or two ago at a profit. Ageing usually quickly destroys a vehicle’s value; not now.

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So why are the sale prices of used vehicles soaring? The underlying cause is surging demand. Depressed sales during the first covid-19 lockdowns last year, when many would-be buyers feared for their jobs and many dealers were closed, are part of the story. Now pent-up demand is being unleashed. Thanks in part to stimulus cheques from the government, drivers have savings to spend. And for those who do not, low interest rates mean that car loans are cheaper than ever.

That helps to explain the direction that prices are travelling, but not their turbocharged speed. For that, look at the recent history of the car-rental business. When the pandemic began, travel stopped and almost no one wanted to hire a vehicle. With bills to pay, most car-hire firms were forced to sell their vehicles at fire-sale auctions. (That was not enough to stop Hertz, once America’s second-largest car-hire firm, filing for bankruptcy protection last May.) But now, with restrictions being eased, demand for hire cars has bounced back faster than expected. More commuters and holidaymakers may be going by car to avoid the fear of infection on planes and public transport. Carmakers have been unable to expand production fast enough to replenish rental fleets, thanks to a worldwide shortage of semiconductors. The hire firms are splashing their cash at used auctions, driving prices up as they compete for the limited vehicles available.

Cox Automotive, which owns Manheim, forecasts that used prices will continue to rise over the next months. That is hardly a surprise. Ford, America’s second-largest carmaker, recently said it expected to produce 1.1m fewer vehicles than planned this year—a fifth of its usual production—owing to the chip shortage. The North American assembly plants that produce its lucrative F-150 pick-up trucks are among the hardest hit, and they are exactly the sort of vehicles whose used values have risen fastest. Used-car prices will drop whenever the supply of new cars recovers, as it will eventually once the chip shortage has abated. But until then, get ready for more inflation scares ahead.