Changes In Inflation By City

The U.S. inflation rate hit a 40-year high last year, but has since slowed down due to factors like the Federal Reserve rate hikes

The U.S. inflation rate hit a 40-year high last year, but has since slowed down due to factors like the Federal Reserve rate hikes. The year-over-year inflation rate was still 3.2% in July 2023, though. This relatively high inflation is driven by a variety of factors, such as the war in Ukraine and labor shortages. The government has continued its interest rate hikes in the hope of reining in inflation further.

To determine how inflation is impacting people in different cities, WalletHub compared 23 major MSAs (Metropolitan Statistical Areas) across two key metrics involving 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?

“The main driver of inflation is the usual story of too much money chasing the same goods. That is, one factor behind the recent high inflation is certainly the Federal Reserve’s expansionary monetary policy. The Fed is actively slowing its expansionary policy, and it seems to be working to slow inflation, too. But some of the other factors behind this bout of inflation are unusual because they came from the pandemic. These include both the much-discussed supply-chain issues and the large amounts of government spending during the pandemic.”
Linda M. Hooks – Professor, Washington and Lee University

“The main factor driving inflation always and, of course, over the last couple of years has been money growth. Thus, the inflation has been caused by the central bank (the Fed). Large and growing government budget deficits also put pressure on the Fed to increase money growth, as to cover the deficit, a government must either borrow or print money, and the government worries about borrowing growing too fast.”
James L. Swofford, Ph.D. – Professor, University of South Alabama [pulluote]

What can be done to continue to slow down inflation?

“Increasing rates and avoiding large primary deficits will cool down inflation. The news is encouraging from this point of view, but it might be too early to declare victory.”
Louis J. Maccini – Professor, Johns Hopkins University

“Inflation is primarily controlled by the Federal Reserve. The Fed has imprecise control, and it takes time to bring down inflation. It is important to give the Fed the time it needs to see how well its contractionary policy is working and to give the Fed some room and independence to make the tough decisions required to control inflation.”
Linda M. Hooks – Professor, Washington and Lee University

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

“The interest rate increases in the past year were what the Fed needed to do. It is unclear how much more they really need to do, but they want to make sure nobody doubts their commitment to squashing inflation, and that could see them raise a little more from here. The economy seems to have been quite resilient in the face of the monetary tightening so far, which gives the Fed a little breathing room.”
Dean Scrimgeour – Associate Professor, Colgate University

“Good. There is no alternative for the Fed. However, fiscal policy also needs to be aligned with the goal of low and stable inflation. Increasing rates can backfire if agents perceive that fiscal policy is on an unstable trajectory.”
Louis J. Maccini – Professor, Johns Hopkins University