Inflation is nationwide, but some metro areas fare better than others, study shows

Rochester Voice 7:20 a.m.


Inflation is nationwide, but some metro areas fare better than others, study shows

(CNBC graphic)

With the year-over-year inflation rate at 7.7% in October, the personal-finance website WalletHub today released its report on the Cities where inflation is rising the most, as well as expert commentary.

To determine the cities where inflation is rising the most - and thus is the biggest problem - WalletHub compared 22 major MSAs (Metropolitan Statistical Areas) across two key metrics involving the Consumer Price Index, which measures inflation. We compared the Consumer Price Index for the latest month for which BLS data is available to two months prior and one year prior to get a snapshot of how inflation has changed in the short and long term.

Rising the Most Rising the Least
1. Phoenix, AZ 18. New York, NY
2. Miami, FL 19. St. Louis, MO
3. Detroit, MI 20. Denver, CO
4. Seattle, WA 21. Washington, DC
5. Anchorage, AK 22. Houston, TX


To view the full report and your city's rank, please visit:
https://wallethub.com/edu/cities-inflation/107537

Expert Commentary

What are the main factors currently driving inflation?

"There are several factors causing inflation. First, we had an increase in demand for goods during the pandemic (disposable income actually increased fairly significantly during the pandemic due to the government's response). Unfortunately, the economy was not able to meet this demand because of supply constraints related to the pandemic. Whenever demand increases and supply decreases, we will see an increase in prices. This initial inflation has been exacerbated by the war in Ukraine which has pushed up both energy and food prices. There is also the possibility that firms are more able to increase prices because of a general lack of competition as industries have been consolidating over the last few decades."
Liam C. Malloy, Ph.D. - Chair and Associate Professor, Department of Economics, University of Rhode Island

"The main factor is demand exceeding supply for a whole host of goods in the US economy. This rising demand was caused, in part, by Uncle Sam providing massive stimulus funds to aid Americans who would otherwise be in considerable financial distress. The availability of more money has increased consumption or demand and supply has not been able to keep up with rising demand. There are other factors as well such as international supply chain disruptions."
Amitrajeet A. Batabyal - Distinguished Professor; Interim Head, Department of Sustainability, Rochester Institute of Technology

Is raising interest rates a good or bad solution to control inflation?

"A balancing act is involved. Raising rates a little can slow demand and thereby reduce inflation. On the hand, raising rates too much risks moving the economy in the direction of a recession."
Amitrajeet A. Batabyal - Distinguished Professor; Interim Head, Department of Sustainability, Rochester Institute of Technology

"Right now, increasing interest rates feel like the only solution to control inflation, at least in the short run. Higher interest rates will cool off the housing market and are likely to decrease consumer spending on durable goods and business investment. The problem with raising interest rates is that it is a blunt instrument. It does not specifically target the areas in which prices are increasing most quickly and if the Fed raises interest rates too high, we could end up in a recession. This is further complicated by the fact that when the Fed raises interest raises this strengthens the dollar as investors want to buy more Treasury bills and Treasury bonds. The weaker foreign currencies can make inflation in those countries worse as they pay more for imports. This may turn into a fairly serious problem as some countries face fuel and food shortages."
Liam C. Malloy, Ph.D. - Chair and Associate Professor, Department of Economics, University of Rhode Island

What does the current inflation rate tell us about the future of the economy?

"The current inflation rate reflects many factors that were unique to the response to the Covid-19 pandemic. The necessary response to high inflation is to increase interest rates. The effects of higher interest rates have cooled housing almost immediately, but we should expect that consumer and business spending will soften in coming quarters. Whether the U.S. economy experiences a relatively deep recession in 2023 depends crucially on how the labor market holds up in the face of rising interest rates. In addition, if inflation begins to come down faster than expected, we would expect the Fed to slow interest-rate increases. Both of those factors are key for the outlook in 2023."
Michael Connolly, Ph.D. - Assistant Professor, Colgate University

"The current inflation rate is high so the Fed will keep hiking rates. This will slow down the economy, will mean the stock market performance will be weak or negative, and mortgage and auto rates will be high, and likely are going even higher."
Gabriel Mathy, Ph.D. - Associate Professor, American University