Market Insider

Gas prices are pushing inflation, even as car prices fall

Key Points
  • Government data show that consumer inflation rose 0.2 percent in April, or 2.5 percent over a year ago, boosted by a 3 percent jump in gasoline.
  • Core CPI, excluding food and energy, rose 0.1 percent, or 2.1 percent over a year ago, and is about a tenth less than expected by economists.
  • The "miss" in core inflation was caused by a drop of 0.9 percent in the prices of new and used vehicles, the second-biggest drop on record.
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Prices for new and used cars fell sharply in April, even as the price of the gasoline needed to fuel them spiked.

Vehicle prices dropped 0.9 percent, the second-largest decline on record, according to J.P. Morgan economists. Used car and truck prices fell 1.6 percent in April, the largest decrease since March 2009, according to the Bureau of Labor Statistics. New car prices were down by 0.5 percent.

But at the gas pump, the trend is in the opposite direction. The national average for unleaded gasoline was at $2.84 a gallon, nearly 20 cents higher than a month ago, according to AAA. Analysts expect gas prices to continue their climb into the summer as drivers hit the road and oil prices rise.

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Consumer inflation, measured by the consumer price index, came in slightly lower than economists expected largely because of the drop in auto prices. Headline CPI rose 0.2 percent, or 2.5 percent year over year in April. Core CPI, without food and energy was up 0.1 percent, or 2.1 percent year over year.

Headline inflation was largely fueled by gasoline's gain. Food was up 0.3 percent, the most in nearly three years.

"It's very mixed month to month. I think over the next year or two is that used car prices are going to go down because of all the leases coming off. The whole cycle was messed up by the hurricanes last year when you had 600,000 cars that had to be replaced," said Peter Boockvar, chief market analyst at Bleakley Advisory. "That reignited prices moving higher, used car prices jumped a lot last year after hurricanes."

Weaker-than-expected CPI helped spark a stock market rally Thursday, as traders speculated that with a lack of inflation pressures, there will be no reason for the Fed to move faster to raise interest rates.

Bond yields slipped, and the 10-year Treasury yield held below the psychologically important 3 percent level. Yields move opposite price.

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How much more pain can drivers expect at the gas pump?