The Pulse

2023's Cities Where Inflation Is Rising The Most

Miami-Fort Lauderdale-West Palm Beach, Florida tops the list with a 9.90% rise from 1 year ago

With the year-over-year inflation rate at 6.5% in December, the personal-finance website WalletHub today released its report on the Cities Where Inflation is Rising the Most, as well as expert commentary. Access complete survey findings here.

Americans are still dealing with sky-high inflation, which hit a 40-year high last year. Though inflation has started to slow slightly due to factors like the Federal Reserve rate hikes, the year-over-year inflation rate was still a whooping 6.5% in December. This high inflation is driven by a variety of factors, including the continued presence of the Covid-19 pandemic, the war in Ukraine and labor shortages. The government is hoping to continue to rein in inflation with additional aggressive interest rate hikes this year, but exactly how much of an effect that will have remains to be seen.

Inflation is rising more quickly in some places that others, though. In order to determine the cities where inflation is rising the most — and thus is the biggest problem — WalletHub compared 23 major MSA’s ( Metropolitan Statistical Areas) across two key metrics related to the Consumer Price Index, which measures inflation. They 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.

Expert Commentary

What are the main factors currently driving inflation?

“Several things are at work. One is a continuing supply-chain problem left over from the initial Covid pandemic where shortages for things like automobiles and appliances are insufficient to meet short-term demand. China’s Covid shutdown has contributed to this and seems likely to continue doing so for the foreseeable future. When supply falls short of demand, prices rise, and inflation results. Second, is the war in Ukraine and OPEC+ decision-making, which has led to a worldwide rise in energy prices. The war in Ukraine has also contributed to grain and food shortages in some countries, which pushes up food prices. Third, unemployment remains low in the U.S., and businesses continue to have trouble hiring workers, which means businesses must pay higher wages to attract them. That increases the cost of doing business, which is often passed on to consumers in the form of higher prices. Finally, government spending on Covid relief pumped more money into the economy thus raising demand, although the effect of that spending has surely been exhausted by now. So, inflation has stemmed in varying degrees from demand shortages, higher energy prices, rising wages, and government spending.”
John L. Campbell – Professor Emeritus, Dartmouth College

“The single biggest factor driving inflation today is the cost of housing either as rental costs or owner-imputed rent owner equivalent rent. After that in descending order are the residual supply chain shocks from COVID (primarily Chinese manufacturing) and the Russian invasion of Ukraine, particularly through disrupted fuel and food supplies. Wages are not a major driver of inflation, because the kinds of institutional structures that led to wage-driven inflation in the 1960s and 1970s, like the cost-of-living clauses in union contracts, no longer exist. We know this because real wages are falling, unlike in the 1960s and early 1970s. In short, inflation is a supply-side problem right now, not a demand-side problem. Deficient supply, not excessive demand.”
Herman Mark Schwartz – Professor, University of Virginia

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

“In the near-term, moderation of the inflation rate generally tells us good things. The economy is adjusting to supply shocks and prices will stabilize. Unemployment is pretty low all things considered, even with falling real wages. Barring further Fed contraction, the economy should avoid a bad recession or possibly even grow a tad over the next year. Things are different in the long run. Global demand is increasing more than global supply for just about everything and the cost of living is going to only get higher in general. High prices are here to stay even if high inflation is not.”
Jeff Heinrich – Associate Professor, University of Wisconsin-Whitewater

“The current inflation rate, and the fact it represents across-the-board price levels, indicates that we should expect the Fed to target an interest rate of 5% in the spring. Higher interest rates suggest in turn that we should expect slow growth in 2023, and for the strong labor market to weaken somewhat. If a recession is unavoidable, however, the current inflation rate has a silver lining. It suggests that many American households have the savings that would make at least a short recession less painful for many.”
Robert Wyllie, Ph.D. – Assistant Professor, Ashland University

What can be done to slow down the rapidly increasing price gains?

“The Fed can continue to raise interest rates making it more expensive for people and businesses to borrow money and spend. The danger, of course, is that the Fed pushes us into a recession. It also jeopardizes investment in new plants and equipment, which could undermine U.S. economic competitiveness in the long run. The government can also raise taxes, which would help reduce demand and thus inflation. Reduced government spending might also help. So, a combination of fiscal and monetary policy serves as the classic tools in America for solving inflation. Alternatively, wage and price controls would work but that requires businesses and workers to negotiate the terms of that sort of agreement. This worked for a while in some European countries during the stagflation era of the late 1970s and early 1980s. In the U.S., however, this is unlikely because neither business nor labor is as well organized and used to this sort of negotiation as they are in Europe. And the government is unlikely to sanction wage and price controls as far as it views them as antithetical to the free market.”
John L. Campbell – Professor Emeritus, Dartmouth College

“There is no single cause of inflation and no single solution. In October, the Fed estimated that American households still had $1.7 trillion in excess savings. Consumer demand ought to fall as this excess savings is spent, and with it, the inflation rate should fall as well. The Fed has signaled another round or two of interest rate hikes, after Wednesday’s 0.50% increase, which is probably around the corner in the new year.”
Robert Wyllie, Ph.D. – Assistant Professor, Ashland University

 

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