How Inflation is Affecting Asset Values and Appraisals

Appraisals

Inflation is a hot topic in the financial world, as it can have a significant impact on the value of assets and appraisals. As the economy continues to recover from the COVID-19 pandemic, inflationary pressures are building up, and businesses at all levels, big and small, are feeling the effects.

In the financial markets, inflationary effects are less obvious. Does an attorney raise his hourly rate for a bankruptcy engagement when inflation is high? There is inflationary pressure all around us, and certainly, some do.

But what about asset values? Does a CPI (consumer price index) rate of 7.9% for the last year make used Caterpillar construction equipment more expensive? Many used prices, as for semi-trailers, are very high at the moment, but mostly for other reasons than the CPI.

Used Asset Prices in an Inflationary Market:

Up and down the supply chain, used equipment prices, for Caterpillar excavators and Kenworth T880 trucks, are extremely high at the moment, but mostly for supply chain, semiconductor, and production issues and not due to the current inflation.

Since most capital purchases are financed or leased, inflation and higher interest rates reduce equipment value since the buyer has to pay higher financing costs.

In the current inflationary environment, it is now much more expensive to repair or refurbish older used equipment, which further reduces the value of any used equipment. Materials for repair are more expensive and sometimes not available. The logistics crisis is exacerbated by the chronic shortage of drivers in the trucking industry; the American Trucking Association estimates a current shortage of up to 100,000 semi-truck drivers in the US.

On balance, used equipment values, as verified by competent appraisals, are very high due to recent market trends. But inflationary pressures have kept used asset prices from being much higher.

As a business owner, it’s important to be aware of these factors when assessing the value of your assets. A competent appraiser can help you understand how inflation is affecting your assets and provide a realistic estimate of their value. With this knowledge, you can make more informed decisions about your business’s equipment and investments.

Chris Nugent is an Accredited Senior Appraiser of the American Society of Appraisers. He holds a BA in Statistics from the University of California, Berkeley, and an MBA from Santa Clara University.

BlueChip Asset Management is an appraisal and asset management services company that serves the ABL, banking, equipment finance, legal, and turnaround industries. Members of TMA, and CFA. Contact us for asset valuation assistance at 415-515-1110, www.bcamasset.com, or schedule a free 15-minute consultation.