Hub near top of heap when it comes to problematic inflation

With the year-over-year inflation rate at 2.4% in September, the personal-finance website WalletHub recenly released its updated report on the Changes in Inflation by City, as well as expert commentary.

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. We 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.

To view the full report and your city's rank, please visit:
https://wallethub.com/edu/cities-inflation/107537


Expert Commentary

What are the main factors currently driving inflation?

"Inflation takes place when spending rises faster than the availability of goods and services, forcing firms to meet some of the increased demand by raising prices. Post-pandemic, several factors have contributed to the rise in inflation, some by boosting spending and others by restricting production. One factor that facilitated inflation by increasing spending was fiscal stimulus during the pandemic, including the fiscal support offered to firms and households affected by Covid-19. Another factor boosting spending was the low interest rates targeted by the Fed for a prolonged period of time... The war in Ukraine also resulted in disruptions in production. As well, after the end of the pandemic, many previously employed adults refrained from re-entering the labor force, perhaps out of concern of contracting the virus and aided by the fiscal support they had received from the government. Fewer available workers means lower ability to produce. Finally, we should add to the pandemic-specific factors the continuing decline in the labor force participation that began in 2000 due to the aging of the US population. It has been a perfect storm."
Constantine Alexandrakis - Associate Professor; Chairperson, Department of Economics, Hofstra University

"The primary factor keeping inflation elevated is the high cost of housing and rent. This is largely due to a persistent housing shortage, which is unlikely to be resolved in the near term. Consequently, we do not anticipate a significant decrease in rent or home prices soon."
Mohammed S Partapurwala - Assistant Professor, Raritan Valley Community College


What can be done to continue to slow down inflation?

"Any measures that slow down the increase in spending and facilitate production will slow down inflation. This includes higher interest rates, and measures that incentivize formerly employed individuals to return to the labor force or currently employed older individuals to postpone their retirement. There is hope that AI and robots may help to boost production, but finding ways to utilize AI in production is something that falls mainly on the shoulders of the private sector rather than the government."
Constantine Alexandrakis - Associate Professor; Chairperson, Department of Economics, Hofstra University

"One effective approach to curbing inflation is reducing energy costs. Lower energy prices translate to reduced production and transportation expenses, which can have a ripple effect throughout the economy, helping to contain inflation."
Mohammed S Partapurwala - Assistant Professor, Raritan Valley Community College


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

"The current decline in inflation tells us that high interest rates have been effective at slowing-down the expansion of spending. Hence, we should expect the Fed to gradually reduce its targeted interest rates as inflation continues to decline. Perhaps a more important question is what inflation does not tell us about the future of the economy. As already mentioned, the aging of the US population poses several challenges: it reduces the availability of workers, increases the need for healthcare, and undermines the ability of Medicare and Social Security to meet their obligations to future retirees. Whether we will be able to meet these challenges through technological innovation alone remains uncertain. If not, an increase in retirement age, a cut in benefits, and an increase in tax rates seem unavoidable. As well, we should expect a reallocation of resources away from sectors that cater to young people, like education, and towards sectors that cater to seniors, like healthcare."
Constantine Alexandrakis - Associate Professor; Chairperson, Department of Economics, Hofstra University

"The persistence of high inflation rates can have several impacts on the economy... High inflation creates uncertainty, potentially causing businesses to be cautious about long-term investments... Erosion of purchasing power may lead to reduced consumer spending in the future... While inflation can reduce the real value of existing debt, it may lead to higher interest rates, increasing the cost of new borrowing. In conclusion, while the current inflationary environment poses challenges, there are potential strategies to address it. The key will be finding a balance between controlling inflation and maintaining economic growth."
Mohammed S Partapurwala - Assistant Professor, Raritan Valley Community College