What the New "New Vehicles" Price Index Tells Us
An upcoming methodological change implies that inflation was worse than we thought. It also tells us a lot about how the data sausage is made.
The Bureau of Labor Statistics is going to change how it measures the prices of new cars and new trucks in the Consumer Price Index.1 While the change won’t start showing up in the official numbers until the April data are published on May 11, the BLS has already released technical documentation and historical time series data for the new methodology.
According to the current—and soon-to-be-replaced—index, the prices of new cars and light trucks are up about 13% since February 2020, with almost all of those price increases occurring after April 2021. By contrast, the new methodology implies that new car prices are actually 21% higher than in February 2020, while new truck prices are really 19% higher. Moreover, the timing of the price gains looks different, with almost half of the total pandemic-era price gains occurring before April 2021.
Most of the gap between the two price indices comes from differences in which new car and truck prices are counted—and how those prices are aggregated into a single number. The new methodology makes inflation since February 2020 appear so much worse because of the way it deals with the fact that Americans shifted spending towards models of new cars and trucks that are more expensive and that have been experiencing faster price increases than average.
The reasons for this difference are interesting, complex, and—potentially—controversial. Understanding the issues at stake has implications for everything from what “inflation” means to how the government measures economic growth.