The US experienced a spike in inflation in 2021, reaching a 40-year high of 6.8% in November3. This was mainly driven by the rebound in consumer demand after the pandemic, the stimulus measures by the government, and the supply chain bottlenecks that created shortages and higher costs for many goods. Inflation remained high in 2022, averaging 5.4% for the year4.
However, many economists expect inflation to moderate in 2023, as the supply chain issues are resolved, the stimulus effects fade, and the Federal Reserve raises interest rates to curb inflationary pressures. The latest projections by the Federal Reserve indicate that inflation will fall to 2.6% in 2023 and 2.2% in 2024. This could have a positive impact on yacht prices, as lower inflation means lower costs for boat manufacturers and lower interest rates for boat buyers.
Interest Rates
Interest rates are another important factor that influences yacht prices, as they affect the cost of borrowing money to finance a boat purchase. Interest rates are determined by the supply and demand of money in the economy, as well as by the monetary policy of the central bank. When interest rates are low, borrowing money is cheaper and more attractive, which stimulates demand and increases prices. When interest rates are high, borrowing money is more expensive and less appealing, which dampens demand and lowers prices.
The Federal Reserve, which is the central bank of the US, has kept interest rates near zero since March 2020, as part of its response to the pandemic. This has helped to support the economic recovery and the boating industry, as low interest rates made boat financing more affordable and accessible for many buyers. However, the Federal Reserve has also signaled that it will start to raise interest rates in 2023, as inflation remains above its target of 2% and the labor market improves.
The Federal Reserve’s latest projections indicate that the federal funds rate, which is the interest rate that banks charge each other for overnight loans, will increase to 0.9% by the end of 2023 and to 1.6% by the end of 2024. This means that boat financing will become more expensive and less attractive in the next two years, which could reduce the demand and the prices for yachts.
Consumer Demand
Consumer demand is another key factor that determines yacht prices, as it reflects the willingness and ability of buyers to purchase boats. Consumer demand is influenced by various factors, such as income, preferences, expectations, confidence, and substitutes. When consumer demand is high, boat sales increase and prices rise. When consumer demand is low, boat sales decrease and prices fall.
