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The country’s regional inflation rankings have been reversed.
For many years, inflation was high as Americans flocked to the South and West for warmer climates and lower costs, boosting consumer demand and driving up prices.
The pandemic has exacerbated this trend, as remote work has driven many people from densely populated Northeastern and Midwestern cities like New York and Chicago to cheaper, more vacant areas like Nashville, Tennessee, and Boise, Idaho.
But the order has changed.
Where does inflation rate remain highest?
According to the Labor Department’s Consumer Price Index, annual inflation in the Northeast rose to 3.8% in June, the highest in the nation, from 2.5% in January, while inflation in the South and West was below 3%. Since the beginning of the year, 12-month price growth has slowed from 3.4% to 2.9% in the South and from 3.3% to 2.8% in the West.
For example, Massachusetts recorded the highest inflation rate of the 50 states last month, nearly 4%, according to Moody’s Analytics estimates based on Department of Labor data. Its inflation rate of 2.2% earlier this year was the seventh lowest. Meanwhile, Florida is now in the middle of the pack at 3% after ranking first at 3.9% in early 2024.
The Midwest remained relatively stable, with inflation falling to 2.5% last month from 2.7% in January, the lowest of the four regions, and the U.S. as a whole saw inflation ease recently after rising sharply earlier this year, dropping to 3% from 3.1% for the year.
Adam Cummins, regional economist at Moody’s, said the economic recovery across the region has been driven primarily by rising home prices in the Northeast, the end of the pandemic and a surge in immigration that is disproportionately affecting the region’s biggest cities.
“What we’re seeing is part of the recovery in the economy and prices after the health crisis,” Cummins said. “The Northeast is recovering.”
Cumulatively, consumer prices have still risen more in the South and West than in the Northeast since inflation began in 2021, and most Americans are probably feeling the price changes that way, Cummins noted. Still, the annual inflation rate reflects recent trends captured in government reports and news headlines.
Also note that on a month-to-month basis, inflation continues to moderate in all four regions, although some regions are falling at a slower pace than others. For example, in the Northeast, average consumer prices rose 0.4% in May and 0.3% in June, compared with 0.1% and 0%, respectively, in the South.
Are rents still rising and causing inflation?
A big factor is the housing problem: As Americans flock to the South and West, developers rush to build new houses and apartments, giving landlords less power to raise rents, Mr. Cummins said. Far less housing is being built in the Northeast because there are fewer people living there and less land is available, he said.
“New housing inventory is not growing in major metropolitan areas such as New York and Boston, where job and population growth is slowing,” said Barbara Denham, senior economist at Oxford Economics.
In January 2022, average housing costs, including rent, rose 6.4% year-over-year in the South Atlantic Coast (which includes the Carolinas, Georgia and Florida) and 5.2% in New England, according to data from Moody’s and the Department of Labor. Last month, housing costs rose 6.4% in New England and 4.3% in the South Atlantic Coast.
Is immigration to the United States increasing or decreasing?
The U.S. is also experiencing a historic surge in immigration. An estimated 3.3 million immigrants will enter the U.S. this year, up from an average of about 900,000 in the decade before the pandemic, according to the Congressional Budget Office. Many of them are settling in big Northeastern cities like New York, Boston and Philadelphia, Cummins said, driving up housing costs and driving up demand and prices for other goods and services.
That means a more vibrant economy and more jobs – and higher costs.
Are people returning to big cities?
More broadly, the Northeast is still losing residents to the South and West, but that loss is slowing as the pandemic eases. Many residents, businesses and tourists are returning to downtown areas in New York and other big cities, putting upward pressure on economic activity and prices, especially in activities like dining out.
At the same time, more businesses than workers are returning to these cities, and labor shortages are driving up wages — costs that are typically passed on to consumers through higher prices. Job openings and wage growth in the South still outpace those in the Northeast, but the gap between the two regions is narrowing, according to Labor Department statistics.
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Are car prices falling?
Still, another factor is auto prices. Supply-chain bottlenecks caused prices to spike early in the pandemic, then they fell sharply as those disruptions were cleared. But the price spike was less dramatic in the public-transit-dependent Northeast, where fewer people are buying cars than in the South and West. Now, prices are falling less.
“The shifting geographic footprint (of inflation) is creating a new dynamic, with price pressures easing more quickly in areas that have faced particularly high inflation over the past few years,” Cummins said.