The Pulse

Cities Where Inflation Is Rising The Most

In the U.S. and around the world, inflation is high and getting higher

With the year-over-year inflation rate at 6.0% in February, the personal-finance website WalletHub today released its report on the Cities Where Inflation is Rising the Most, as well as expert commentary.

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 whopping 6.0% in February. 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 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 than others, though. In order 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 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?

“The current inflation is the result of excessive overspending by the U.S. government well beyond the initial Covid crisis, easy monetary policy in 2021, and some Covid and job market-driven supply constraints.”
Jon A. Hooks, Ph.D., CFA – Professor, Albion College

“Inflationary pressures are slowing down. In December CPI-U declined -0.1% compared to November. The good news is that the largest declines were observed in the energy sector. Gasoline, fuel oil, electricity, and utility gas all declined. This is important because energy is an input of production for every other commodity, which means that inflationary pressures in non-energy items should slow down as well in the coming months. Areas with notable price increases include food and shelter. Shelter in particular is a serious structural issue and can be alleviated with more affordable housing policies. Food prices continue to experience the lingering effects of COVID-related production disruptions and transportation costs, which continue to rise.”
Pavlina R. Tcherneva – Associate Professor of Economics, Bard College; Director, OSUN Economic Democracy Initiative; Research Scholar, Levy Economics Institute; Expert, Institute for New Economic Thinking

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

“The point of interest rate increases is to slow down the economy and thus cool demand. Pressure on prices thus falls. It’s effective for controlling the rate of inflation but does not come without some pain.”
Jonathan K. Hanson – MPP/MPA Program Director; Lecturer, University of Michigan

The federal government went too far with stimulus checks and enhanced unemployment checks, and the Federal Reserve has no choice but to reign in the excessive demand...

“Unfortunately, higher interest rates are the only solution to the demand side causes of the current inflation. The federal government went too far with stimulus checks and enhanced unemployment checks, and the Federal Reserve has no choice but to reign in the excessive demand. My guess is that we are likely two or three additional rate increases away from being able to see inflation moderate toward the Fed’s 2% target. This depends on how economic growth responds to the rate increases.”
Jon A. Hooks, Ph.D., CFA – Professor, Albion College

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

“It seems that we are on the right path. On a 12-month basis, inflation growth has been slowing down. Notably, energy costs are decelerating and other items such as used cars and trucks, and apparel have been declining. With additional investment in logistical support and a decline in transportation services, I believe we will see declines in other items that impact families’ pocketbooks – such as food. It is important to recognize that rising costs of shelter have been a significant burden on American families well before we saw rising inflation last year. To take off that pressure, public policies need to invest more in affordable housing. Rising interest rates only make matters worse.”
Pavlina R. Tcherneva – Associate Professor of Economics, Bard College; Director, OSUN Economic Democracy Initiative; Research Scholar, Levy Economics Institute; Expert, Institute for New Economic Thinking

“Even if inflation moderates, this only means that prices increase more slowly. It does not bring prices down. It is possible that if we can solve the supply-side issues the prices of some goods can come down. The hope is that the Fed’s policy actions designed to slow inflation do not lead to a deep economic downturn beyond the fallout we have already seen in the technology and banking industries.”
Jon A. Hooks, Ph.D., CFA – Professor, Albion College