Both used and new cars are going to cost even more in 2022, Goldman says

• Car prices will keep climbing into 2022 as the chip shortage lingers, Goldman Sachs said.
• The bank expects prices for used and new cars to peak in the first and second quarters, respectively.

If you waited for prices to fall before buying a car in 2021, Goldman Sachs says you'll have to wait a little while longer.

Inflation has lifted prices across the board over the last 12 months, but the car market has seen some of the biggest increases. Prices for used cars and trucks have been among the biggest drivers of inflation in 2021, with costs soaring 31% over the last year. New vehicles have seen a smaller gain of 11%, but the global chip shortage has left dealers struggling to restore supply. New-car buyers couldn't find cars to buy, and used-car buyers found it increasingly hard to afford them.

Relief won't come for at least a few more months, Goldman economist Spencer Hill said in a recent note. Prices for new cars "remain unsustainably low" compared to used vehicles, signaling there's "more inflation in the pipeline." Used cars from two years ago are selling for 10% more than their 2022 counterparts on average, despite having older technology and more mileage, according to the bank's analysis of Kelley Blue Book values. As such, new car prices will have to overtake used values before the market returns to pre-pandemic norms.

Used car prices will be the first to peter out, peaking in the first quarter, according to Hill, a revision from the previous forecast of price growth cresting in December. New car prices will peak in the second quarter, three months later than last projected.

Automotive categories already count for 40% of today's elevated inflation, and the longer-than-expected price surge will keep broad inflation high into 2022. The core Personal Consumption Expenditures price index — the Federal Reserve's inflation measure of choice — will now hit 3.4% in June, Hill said, up from the prior estimate of 3.25%. The measure will cool to 2.5% in December 2022, but that's still above the previous projection of 2.3% inflation.

Plenty stands in the way of a car-market cooldown

Cooling the car markets down won't come easy. Port congestion has only marginally improved over the last month, Goldman said, signaling it could take longer to bring foreign auto supply to the US market.

The Omicron variant also adds a major risk to the supply recovery. If the variant sparks factory shutdowns in East Asian chip hubs, the rebound in car production could be further delayed. Even if semiconductor production slows half as much as it did during the Delta wave, the hit to auto manufacturing would raise new car prices as much as 2.7%, according to the bank. Used car buyers would take an even bigger hit, with values ripping another 7% to 8% higher, Hill said.

There is some good news amidst the car-price chaos, the economist added. Key semiconductor suppliers spent big building out their production capacity in the third quarter and investment levels now sit above pre-crisis levels. While it typically takes between two and three quarters for capital investment to translate to boosted chip supply, Goldman expects the capacity build-out to fuel "improved microchip availability an rising auto production" in the second half of 2022.

Relief for car shoppers is on its way, it'll just arrive later in 2022. Even then, prices have a long way to fall before nearing pre-pandemic levels.