In its used vehicle price index for June, Moody’s Analytics has published its Datium Insights report that said that after two months of price gains “seasonally-adjusted used-vehicle prices returned to their expected downward path.”

Moody’s Analytics associate economist, Catarina Noro, said that during June, prices declined to slightly below the March level which completely offset the past two months of gains.

“As expected, more supply in the new-vehicle market and the tighter monetary policy start to have a cooling effect on the vehicle market,” Ms Noro said.

“Until now, demand has been supporting strength in used-vehicle prices.”

Moody’s Analytics notes that new-car sales are continuing to rise and were only tempered by supply issues.

But it said that the June numbers could also be attributed to orders placed in 2022 that were only delivered in 2023 as supply-chain disruptions eased.

“So, although vehicle demand has remained robust, it might not be the sole motive for the strong new-vehicle sales figures,” Ms Noro said.

The company said that although global vehicle production has not returned to pre-pandemic levels in Europe and Asia, there has been a decent improvement.

It said that an additional lift to global new-vehicle supplies over 2023 is expected to come from China’s swift abandonment of its zero-COVID policy.

“April’s Chinese automotive production was already 77 per cent higher than a year earlier,” it said in its report.

“With more new vehicles expected to become available in the market, new supply will relieve some pressure in the used-vehicle market.”

Meanwhile Moody’s Analytics said that Australian consumers are being resilient to the interest rate hikes, with household consumption still upbeat and with the unemployment rate hovering around its lowest level on record.

“If we take out seasonal volatility, the unemployment rate has been mostly flat at 3.5 per cent since August.

“Despite the RBA’s efforts to implement the most aggressive monetary policy tightening cycle in its history, the labour market has not responded.”

Because of this, Moody’s Analytics has revised its interest rate forecast, projecting that borrowing costs will reach a peak of 4.35 per cent instead of the previously expected 4.1 per cent.

“With more interest rate hikes on the plate, we are expecting that the unemployment rate will rise to 3.9 per cent by the end of this year and to 4.5 per cent by the end of 2024, as tighter monetary policy takes its toll,” Ms Noro said.

“As the labour market tightens, prices will respond with inflation averaging 5.5 per cent in 2023 and 3 per cent in 2024.

“This hawkish monetary policy combined with increased supply of new vehicles will relieve the inflationary pressures in the used-vehicle market for the rest of the year.”

Moody’s Analytics projects that used-vehicle prices will fall through 2023 as the supply of vehicles increases and demand slows.

As a caution, Ms Noro said the risks to the forecast “are weighted toward the downside.”

“If global economic malaise causes the Aussie economy to perform worse than expected, drastic declines in demand will push prices down further and faster than expected,” she said.

“On the other hand, the risk has increased that demand may not cool as quickly as expected, keeping used-vehicle prices higher for longer. 

“The rate of price declines has slowed dramatically, and the supply of new vehicles remains constrained. 

“Additionally, rising new-vehicle prices are making used vehicles more attractive than they were a year earlier. 

“If production and imports of new vehicles do not keep improving, the expected fall in used-vehicle prices could be shorter and shallower than expected.”

By Neil Dowling