The Pulse

Changes In Inflation By City

The year-over-year inflation rate sits at 3.3% as of May 2024

In order to determine how inflation is impacting people in different cities, WalletHub compared 23 MSAs (Metropolitan Statistical Areas) across two key metrics involving the Consumer Price Index, which measures inflation.  

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 3.3% as of May 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, it’s possible the Federal Reserve could 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. Detroit, MI
2. Dallas, TX
19. San Diego, CA
20. Atlanta, GA
3. Honolulu, HI21. Denver, CO
4. San Francisco, CA22. Minneapolis, MN
5. Seattle, WA23. Tampa, FL

Expert Commentary

What are the main factors currently driving inflation?

“Right now, inflation is mostly driven by the cost of housing, which displays a considerable delay (because of the length of rental contracts).”
Juan Carlos Conesa – Professor, Stony Brook University

“Rising housing and natural gas prices accounted for 70% of the 3.4% increase in the latest monthly CPI report. Older homeowners who have mortgages locked in at low fixed rates are staying put, with the result that fewer homes are available for younger homebuyers to enter the market. This, along with sluggish new home construction, has pushed up home prices. Rents have risen to match.”
David Skidmore – Professor, Drake University

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

“Changes in interest rates by an independent monetary authority (the Federal Reserve Bank) have proven over time and across countries to be the most (perhaps the only) effective way of controlling inflation.”
Juan Carlos Conesa – Professor, Stony Brook University

“High interest rates can themselves be a source of inflation. We see this…where high interest rates produce rigidity in the housing market. But interest rates also represent the price of money. When interest rates rise, this means that people must pay more to borrow money. This pushes up the total cost that consumers pay for the goods financed with those borrowed funds. Even as the Fed has held the nominal interest rate steady for quite some time, the real interest rate – the difference between the nominal rate and inflation – has actually risen as prices have fallen. Thus the price of money has gone up as inflation has gone down.”
David Skidmore – Professor, Drake University

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

“Not much, the future of the economy is determined by technology, geopolitical considerations, economic policy, etc. Current and subsiding inflation has very little importance.”
Juan Carlos Conesa – Professor, Stony Brook University

“The Fed’s theory is that high interest rates will lower prices by dampening demand for goods and services as consumers reign in spending due to the high cost of credit. Businesses will respond by lowering prices to lure shoppers back. However, instead of slowing spending, consumers have, over the past couple of years, drawn down savings accumulated during the pandemic and, most recently, gone into greater credit card debt. This bullish consumer demand is, however, unsustainable and could, if interest rates remain high for too long, lead to a recession once rising debt reaches a tipping point and consumers pull back or bankruptcies rise.”
David Skidmore – Professor, Drake University