Used car prices in America are plummeting at the fastest pace since the pandemic - and that may drive June inflation below 3%

• Used car prices in America saw the largest monthly slump since the height of the pandemic in June. 
• The Manheim Used Vehicle Value Index dropped to 215.1 last month, marking a 10.3% tumble from a year earlier.
• That's good news on inflation, which could fall below 3% in June, one analyst said. 

Used-car prices in America are plunging the most since the height of the pandemic in 2020 – and that's good news on the inflation front.

Sliding costs of second-hand vehicles will help the Federal Reserve's fight to rein in consumer prices, and could see the headline inflation number for June come in below 3%, according to some analysts. That would be the first such reading since March 2021.

The Manheim Used Vehicle Value Index dropped to 215.1 in June, marking a 10.3% decline compared to a year ago. 

Meanwhile, wholesale use-vehicle prices tumbled by 4.2% in June – the largest monthly fall since the COVID-19 pandemic. 

"Used car prices will drop markedly in coming months in the CPI, helping core inflation materially lower!" Andreas Steno Larsen, CEO of StenoResearch said in a tweet, adding in a research note that there could be a "good chance of an inflation surprise below the 3% handle in headline terms." 

Markets are keeping their eyes peeled for June's inflation report set to be released on July 12. 

Should inflation fall below 3% thanks to falling used-car prices, it would give a major boost to the Fed's efforts to bring down the pace of consumer-price increases to its 2% target. That's because used car prices represented 33% of the 0.4% core inflation rate, which excludes food and energy costs, in May. 

US inflation has more than halved since mid-2022 when it hit 40-year highs, with the latest reading coming in at 4.0% for the year through May. The drop has been largely engineered by the Fed's aggressive interest-rate policy, where it s hiked benchmark borrowing costs by 500 basis points over the past 16 months. 

The central bank has hinted that more rate increases are on the way, but investors are worried that too much monetary tightening will tip the economy into recession.