By Phrysphotos @Adobestock

The CPI Inflation numbers for September came in below economist estimates. A big driver of the miss was a drop in used car prices which fell 3% in September vs. the prior month. That matched the biggest drops on record for used car prices, but did used car prices really plunge 3% in the face of a booming economy?

Not likely according to Manheim Consulting’s used Vehicle Value Index which hit a record for the third consecutive month in September.

As is typical with many of the prices the government reports in the CPI, the reality on the ground tells a different story than is being reported by labor statisticians.

“This is one of the weirdest CPI reports that I can remember,” Stephen Stanley, chief economist at Amherst Pierpont Securities, wrote in a report Thursday. He called the government’s used-vehicle price figure “entirely at odds with the underlying reality in that market” and cited wholesale-auction data.

Manheim’s index is an indicator of what auto dealers are paying for used-vehicle inventory in the wholesale market. By contrast, SUVs may not be a fully represented contingent of the fixed basket of used vehicles that the government measures, said Zo Rahim, a manager of economics and industry insights at Manheim parent Cox Automotive.

“The used market continues to see share increased in the light-truck mix,” Rahim wrote in an email. “Our mix is much richer and aligned with what sold at auction.”

Another possible reason for the sharp drop in the Labor Department’s gauge is a new methodology implemented in January: The index switched to a one-month change from a three-month average. The transition followed an increase in the sample size of prices, while the average had previously been used to smooth volatility from the smaller sample, according to a fact sheet on the calculations.

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