The Pulse

Changes In Inflation By City

The year-over-year inflation rate hit 3.5% in March

To determine how inflation is impacting people in different cities the personal-finance website WalletHub released its report on the Changes in Inflation by City, as well as expert commentary. View the complete report findings and infographics here.

The U.S. inflation rate hit a 40-year high after the pandemic but has since cooled significantly due to factors like the Federal Reserve rate hikes. The year-over-year inflation rate sits at 3.5% as of March 2024, which is still above the target rate of 2%.

Various factors, such as the war in Ukraine and labor shortages, drive this higher than average inflation. Despite the country not meeting its target yet, the Federal Reserve may even cut interest rates this year rather than raising them further.

Inflation rates differ across the U.S., though. To determine how inflation is impacting people in different parts of the country, WalletHub compared 23 major MSAs (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.

Biggest Inflation ProblemSmallest Inflation Problem
1. Honolulu, HI
2. Miami, FL
18. New York, NY
19. Denver, CO
3. Riverside, CA20. Minneapolis, MN
4. St. Louis, MO21. Phoenix, AZ
T-5. Seattle, WA
T-5. Dallas, TX
22. Detroit, MI
23. Anchorage, AK

Expert Commentary

What are the main factors currently driving inflation?

“Inflation rates are still a shade above past trends (3% versus 2%). Residual supply chain troubles contribute to this, although the largest factor is the strong economy with pressure on wages and opportunities for businesses to raise prices to increase profits.”
Gerald Friedman – Professor, University of Massachusetts at Amherst

“At the global level, there are two main factors: the COVID-19 pandemic, which disrupted supply chains, and the war in Ukraine, which increased the price of certain commodities. For example, Russia and Ukraine are important grain exporters (particularly wheat). And Russia is among the world’s largest oil and gas producers. The war and the resulting sanctions against Russia reduced the global supply of oil, driving up its price. At the domestic level, the US labor market is tight – unemployment rates are quite low. People are consuming more. This increased demand, coupled with the reduced supply, leads to an increase in prices.”
Iasmin Goes, Ph.D. – Assistant Professor, Colorado State University

These days, inflationary expectations are in line with past experience, suggesting that observers expect a stable inflationary environment going forward...

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

“Raising Interest rates with the goal of slowing inflation (by making it more expensive to borrow money and therefore consumers refrain from spending on expensive items) can be an effective way to cool an economy. That said, it is a delicate balancing act. When economic activity is slowed too much by a decline in consumer demand then businesses begin to cut production and eventually jobs which can ultimately lead to a recession.”
Dollie Davis, Ph.D. – Dean of Faculty, College of Social Sciences, Minerva University

“There are other tools to control inflation, but they only work in the short term. Price controls, for example, are hard to enforce and can lead to market distortions because prices are not based on actual supply and demand. Tax increases or wage controls are deeply unpopular. So, raising interest rates is the most effective solution to control inflation. This is not to say that it is the perfect solution; in particular, higher interest rates are really bad for low-income families that already have high credit card debt and no savings. But in the aggregate, it is a strategy that tends to work.”
Iasmin Goes, Ph.D. – Assistant Professor, Colorado State University

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

“These days, inflationary expectations are in line with past experience, suggesting that observers expect a stable inflationary environment going forward.”
Gerald Friedman – Professor, University of Massachusetts at Amherst

“One thing I hope people understand is that the current inflation rate reflects the strength and resilience of the US economy. The inflation rate peaked in 2022 and has been declining ever since, which tells us that the economy is slowly cooling off. But this, of course, can also have negative consequences, as it will lead to an increase in the unemployment rate. So, the challenge is to find a balance – we want an economy that is dynamic enough to generate jobs, but not so dynamic that we are unable to get inflation under control.”
Iasmin Goes, Ph.D. – Assistant Professor, Colorado State University