The ongoing United Auto Workers strike could present a risk to the fight against inflation, according to Barclays. The strike, which has targeted plants across the "Big Three" automakers — Ford , General Motors and Stellantis — risks paring down what were already low levels of auto inventories, analyst Pooja Sriram said in a Monday note. According to Sriram, this could consequently put upward pressure on auto prices, which have played an outsize role in persistent inflation pressures. "We think upside risks to core inflation are likely to materialize primarily in used car prices in the event of a sharp inventory drawdown," said Sriram. "Used car prices, which account for 3.5% of core CPI (but only 0.5% of core PCE), tend to be sensitive to new car inventories, more so in this post-pandemic period, with car inventories tight and new car prices substantially elevated." She noted that the strike will not likely affect auto prices through October. Recent inflation readings have shown a promising slowdown in year-over-year growth. After reaching a high of 9% year-over-year increases in June 2022, prices have shown a consistent downward trend. The consumer price index increased 3.7% in August from 12 months earlier. While this marked a slight uptick from July's 3.2% year-over-year increase, August's rise was largely fueled by a sharp jump in energy prices, which many economists anticipate will be a temporary interruption. Prices for both new and used vehicles were among the first consumer goods to show signs of high inflation during the Covid-19 pandemic era. Although these levels have retreated from their highs, new vehicle prices still managed to gain 2.9% in August 2023 from the prior year. The increase has further tightened consumers' wallets through a pass-through effect onto auto insurance premiums, which surged 19.1% in August 2023. Barclays' current base case scenario is for a more prolonged strike targeting additional plants, with end dates across the manufacturing locations varying from early October to mid November. Sriram estimates this could potentially boost the year-over-year rise in core CPI to 3.9% in December, with "modest" spillover effects into early in the first quarter of 2024 that would reverse by year-end. "We expect the FOMC to look past any near-term boost to core CPI caused by a strike-related production disruption," said Sriram. "However, in the event that the union manages to negotiate a more generous contract covering not only higher wages, but also other benefits, we think this could potentially be viewed as the latest indication of deep-seated cost pressures that will likely slow the pace of deceleration in wages (and supercore inflation)," she continued. — CNBC's Michael Bloom contributed to this report.
