Over the past few months, in fact, we've repeated again and again that inflation will keep rising, and even identified some strange reasons why.

Remember back during the early days of the pandemic when used car prices went through the roof? Supply chain dysfunction and stay-at-home orders prevented the big auto manufacturers from producing too many new cars. So, demand for used cars surged… and used car prices shot to the moon.

But used car prices eventually started to fall back to earth. And throughout this year, the government inflation reports showed steep drops in used car prices– like 10 to 12% year-over-year declines.

We made two key points about this:

1) The big drop in used car prices was essentially dragging down the inflation average. Other prices, like housing, medical care, etc. were still rising by 5% or more. But after averaging in the negative 10% used car price declines, the overall inflation rate seemed to be falling.

2) We also said this would be temporary. Used cars could only fall for so long before they reached 'normal' levels. And once that happened, inflation would start to rise again.

This appears to have now happened.

During the summer, for example, used car prices fell 10.9% year-over-year in the month of July. Then in August, the year-over-year decline decelerated to -10.4%. Then the following month to -5.1%. Well, the October data was released just this morning, and used cars index fell 3.4%.

In other words, we're almost at the end of the 'used car deflation' benefit that dragged down the government's inflation report. So, it's no coincidence that we also see inflation once again rising, from 2.3% in September to now 2.6% in October.