Wall Street and the Federal Reserve closely monitor inflation numbers, such as the Consumer Price Index (CPI) from the Bureau of Labor Statistics and the Personal Consumption Expenditures Price Index (PCE) from the Bureau of Economic Analysis.
The recent release of CPI data showing a 0.2% increase in annual inflation has sparked speculation about potential cuts to the Effective Federal Fund Rate (EFFR) at next week’s meeting. However, according to a brief by CBRE, relying solely on CPI data tells only part of the story. It is important to consider that inflation can vary across different regions.
To support this point, CBRE analysts studied changes in consumer prices for metro areas with varying sizes. The findings revealed that smaller cities experienced deflation in 2015 when industries like oil & gas and manufacturing were struggling – two sectors prominent in smaller cities. In contrast, larger cities with service-based economies were less impacted during this time.
Fast-forwarding five years later, CBRE’s brief explains how prices have risen significantly in smaller cities due to people leaving larger urban centers during COVID-19 restrictions being lifted more quickly than those imposed on large urban centers – allowing commerce to rebound faster.
Currently, consumer prices are decreasing slightly faster in smaller cities compared to larger ones due largely because housing costs make up a significant portion of CPI calculations and tend be higher in bigger metropolitan areas.
In conclusion: not all forms or levels of inflation are equal.
