January 27, 2022
Pretty much everyone looking at the 4th quarter GDP report (including me) noted that a surge in inventories was responsible for 4.9 percentage points of the 6.9 percent growth in the quarter. But, the Washington Post had a unique take, it told readers that inventories didn’t actually rise, it was simply that prices were higher:
“Thursday’s GDP report noted that private inventory investment from motor vehicle dealers was a leading contributor to growth in the final three months of 2021. But that doesn’t mean that dealerships have been able to fill up their lots and catch up with consumer demand. Rather, Jonathan Smoke, chief economist at Cox Automotive, noted that the models themselves have gone up in value as car prices surge higher and higher.
“‘The real driver of the retail inventory measurement was the dollar value, driven by new vehicle price inflation,’ Smoke said. ‘This does not mean that real unit inventories are up substantially — they are not.'”
It’s not clear what the Washington Post is referring to. The 6.9 percent growth in GDP report, and the 4.9 percentage contribution of inventories is also in real terms. This means that its measure of inventories for cars is adjusted for inflation. Price adjustments are never perfect, but the Commerce Department realizes that car prices have risen.