The more people want to live someplace, the more prices rise in those places.
During the pandemic, for example, people flocked to Florida from a variety of cities, drawn by warm air, relatively affordable housing, and, sometimes, its lack of Covid-related regulations.
But pandemic-fueled population shifts leading citizens to leave larger cities for the suburbs or smaller metro areas is helping drive higher inflation in some areas and lower inflation in the biggest cities, according to economists.
While inflation seems like some magical number that bureaucrats and politicians control, it's often just supply and demand.
If a retailer, for example, only has a limited supply of a popular item (say the latest Xbox or PS5) it can either charge the highest price the market will support or people will buy the item and then resell it.
Increased demand with limited supply has also driven inflation because nearly a third of the Labor Department's consumer-price index is represented by housing costs. So cities with rising rents and purchase prices due to increased demand will be more heavily affected by inflation.
“The lion’s share of difference between Atlanta and the rest of the country has to do with what’s happening with shelter,” said Brent Meyer, an economist at the Federal Reserve Bank of Atlanta, told the Wall Street Journal. “A lot of what’s going on here driving up rental prices is the booming economy.”
Image source: Getty Images.
Inflation Depends Upon Where You Live
Median sale prices of homes in Atlanta rose nearly 23% in 2021 compared to a national increase of 15.2%, according to real estate brokerage Redfin Corp.
Meanwhile, Austin, Miami and Seattle were the top three fastest growing cities in the country, according to Quicken Loans, and Miami and Seattle saw some of the highest inflation last year.
Inflation followed people to the most popular cities in the U.S. in 2021, with the consumer price index rising most starkly in popular destinations.
For example, the Atlanta-Sandy Springs-Roswell, Georgia, area led the nation as consumer prices rose 9.8% year over year in December, according to U.S. Department of Labor data.
The Phoenix -Mesa-Scottsdale, Arizona, area meanwhile saw a 9.7% increase year over year in December.
Of metropolitan areas with more than 2.5 million people, the St. Louis (8.3%), Baltimore (8%), Seattle (7.6%) and Miami (7.1%) areas all saw inflation higher than the national 7% average along with Atlanta and Phoenix.
Meanwhile, the New York City area saw some of the lowest inflation increases with a 4.4% rise in 2021. The Los Angeles and Chicago areas both saw increases of 6.6%, below the national average.
The Northeast region overall saw an increase of 5.9%, while the Midwest region saw an increase of 7.5% and the South saw a 7.4% increase. The West saw an increase of 7.1%.
The Federal Reserve to the Rescue?
St. Louis Federal Reserve President James Bullard reiterated his view Monday that the central bank needs deeper near-term rate hikes in order to tamp down domestic price increases.
Last week, Bullard said the Fed needs to increase interest rates by around 1% between now and July 1.
"The last four inflation readings, taken in tandem, suggest that inflation in broadening and and possibly accelerating in the U.S. economy so I shaded up my position to show that I think we need 100 basis points of tightening by July 1," Bullard, a voting member of the Open Markets Committee, told CNBC.
The odds of a Saturday rate hike between now at the March meeting, only the second since 1979, have jumped to around 25%, according to data from Bank of America's weekly "Flow Show" report.
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