CarMax shortfall is a victory for the Fed against inflation

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CNBC’s Jim Cramer told investors Thursday that the recent shortfall at used-car retailer CarMax is good news for the Federal Reserve’s quest to reduce inflation.

“When you look at this quarter of CarMax, it tells you that the Fed has been incredibly successful in eroding consumer confidence,” he said. “[Fed Chair] Jay Powell doesn’t want people spending their money on big ticket items.”

CarMax missed earnings estimates by 43% in its fiscal second quarter results released Thursday, citing macro issues such as inflation and soaring interest rates.

Shares of Carmax fell nearly 25%, hitting a new 52-week low. The action also dragged down the shares of other used car dealerships, including Carvana and AutoNation, which fell 20% and 10%, respectively.

One factor that highlights the slowdown in the used-car market is a drop in vehicle prices, according to Cramer.

The Manheim Used Vehicle Value Index, a price trend indicator, has steadily declined this year, although each monthly reading was up from the previous year due to earlier price increases. However, there is likely to be a year-on-year price decline next month, he said.

“This represents real progress in the war on inflation,” Cramer said.

He added that if some investors tried to fish the bottom of the used car space before CarMax released its quarter, they should have known better than to do so in the current inflationary environment.

“Used car stocks looked cheap, but that was a trap because they just can’t meet Wall Street’s earnings estimates in this environment,” he said.

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