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Inflation accelerated unevenly according to metro-level Consumer Price Index (CPI) data.
Prices increased 7.5% nationwide between January 2021 and 2022 in the latest CPI data released by the Bureau of Labor Statistics. However, prices in Sun Belt boomtowns grew 7.8% year-over-year (YoY) while the rest of the country grew by 6.3% [1], according to the latest available data. Most metros are experiencing growth at or above their previous peaks stretching back to 2002. The exceptions to this are the New York and San Francisco metro areas, but they are still experiencing inflation growth rates near their twenty-year peaks.
Inflation growth in the Sun Belt has largely been driven by economic fundamentals as the region’s labor market recovery has outperformed other areas of the country.
The spread in metro-level inflation readings seems to be a feature of the labor market’s uneven recovery. The correlation (r=69%) between a metro area’s latest inflation reading and their December job growth is a moderately strong and positive. Sun Belt metros included in the analysis have recovered an average of 87% of jobs lost at the beginning of the pandemic while non-Sun Belt metros have only recovered about 73% as of December 2021, the latest data available. Prices are increasing over 2 percentage points faster than the national average in the Phoenix metro area, where a sweltering labor market has pushed employment 1.3% above its pre-pandemic peak.
The Sun Belt’s inflationary pressures are intensified by its housing supply crunch.
Housing costs play a significant role in how the Bureau of Labor Statistics’ measures inflation. In a recent blog post, we highlighted how the Sun Belt’s strong increase in rental costs can be affecting affordability for existing residents and contributing to a reduction of on-time rent payments throughout 2021 and into 2022.
Our analysis found that average rents have grown 16.8% across all property sizes in the Sun Belt, while only increasing 5.1% for other areas of the country between January 2021 and January 2022. The region’s labor market fundamentals are likely to remain strong as the nation’s labor force migrates south to adjust to emerging population centers, furthering the housing supply gap and raising housing costs if housing needs are not met. Given the outlook for the labor market, we expect that there will still be a noticeable difference in inflation between the Sun Belt and non-Sun Belt metros as inflation moderates nationally as is forecast to happen later this year.
[1] These data are population weighted using vintage 2020 metropolitan and micropolitan statistical area population estimate totals.