Wholesale used car prices dropped last month by the largest amount since the beginning of the COVID-19 pandemic, according to the latest Manheim Used Vehicle Value Index (MUVVI), tumbling by 4.2 percent in June from May.

The index, which monitors wholesale prices of used cars sold at auction, declined to 215.1 in the same month, down 10.3 percent from a year before. It’s a big chance for the sector after used car prices jumped up 40 percent to an average of nearly $29,000 between early 2020 and May 2023, as reported by the Associated Press.

On a year-on-year basis, Manheim estimates that used car prices were down in June 6.0 percent, “the best year-over-year performance since March.” The average retail listing price for a used vehicle also dropped over the last four weeks, though by only 0.5 percent. Sales by volume, on the other hand, were 0.5% higher in June from May.

Used car market
Used cars at a dealership on July 11, 2023, in Chicago, Illinois. According to the Manheim Used Vehicle Value Index, used car prices dropped 4.3 percent in June, the second-largest one-month drop in the history of the index.
Scott Olson/Getty Images

“Used car prices are being driven down by a combination of higher interest rates and reduced buying power for consumers,” Karl Brauer, executive analyst at iSeeCars, told Newsweek. “It now costs substantially more to finance a car purchase due to higher interest rates, and high inflation is reducing the average consumer’s spending power.”

The drop in used car prices is another sign that inflation is easing in the US after reaching a record 9.1 percent in June last year. The Consumer Price Index, which measures core inflation, fell to 4.8 percent in June, the lowest since October 2021 and 3 percent less than a year prior.

Last month, the Federal Reserve put its aggressive hiking campaign on hold as it estimated the impact of higher interest rates on the US economy and inflation. The central bank is meeting again this month, and many experts expect it to raise its key rate again despite inflation being significantly down from last year.

“Inflation is absolutely playing a part in reducing used car prices because consumers have to spend more for everything else, including rent and food, which limits their car-buying budget,” Brauer said.

Chris Frey, senior manager of Economic and Industry Insights for Cox Automotive, described the drop in prices as “among the largest declines in MUVVI history and the largest decline since the start of the pandemic in April 2020 when the index plunged 11.4 percent,” as mentioned by Manheim.

Frey said that “the year-over-year decline was also large, another 2.7 percent drop from May’s annualized 7.6 percent decline, but as mentioned last month, auction prices were lower in the fall last year, and we expect these to increase year-over -year moves to shrink in the months ahead as the market normalizes.”

Frey added that, while used retail inventory has been improving over the last several weeks, allowing prices to cool down, “we are expecting less volatility in wholesale price movements through the year-end.”

“Used car prices will likely drop for the rest of the year, though slowly and not by a large amount,” Brauer said. “There is still plenty of buying pressure and supply is still relatively low due to the pent-up demand created during Covid.”

While used car prices have dropped, new car prices remain historically high. According to USA Today, the average monthly car payment as of the second quarter of 2023 was $733, based on data from Edmunds.

Update, 7/14/23 4:50 am ET: This article was updated to include an article from Karl Brauer.