Substitution and Inflation Featured

By Ted Craig July 02, 2019 1037

There was a letter in yesterday’s WSJ arguing that the substitution effect is overrated and that inflation is underrated as a result. The argument is solid, as we see in the used-car business.

More and more traditional new-car buyers, sellers and creditors have shifted to the used market in recent years. As this has happened, used cars have grown more expensive. As a result, traditional used-car buyers, sellers and creditors have struggled. Their models no longer work as well because inventory costs are higher.

So, used-car inflation is higher, regardless of what the CPI says.

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Last modified on Tuesday, 02 July 2019 15:27

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