Changes in Inflation by City from Wallethub

With the year-over-year inflation rate at 3.2% in February, the personal-finance website WalletHub today released its 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.

View the full report and your city’s rank

Expert Commentary

What are the main factors currently driving inflation?

“The unprecedented expansionary monetary easing and fiscal measures deployed during the pandemic, along with supply-side shocks such as global supply bottlenecks and the Russian-Ukraine war during and after the pandemic, are considered crucial factors driving inflation.”
Wenyi Shen – Associate Professor, Oklahoma State University

“While the inflation rate has declined, some of its drivers have become structural to the economy. Business practices, utilization of high-tech inputs, concentration, pandemic effects on pricing, environmental and institutional factors, and wars are important factors that lead to inflationary pressures…Environmental factors are also drivers of inflation and have become structural. Increased heatwaves, droughts, floods, soil erosion, water shortages, and pollution are not occasional disaster events. They contribute to shortages, uncertainty, and higher costs as evidenced in multiple key sectors – food, energy, and automobiles.”
Zdravka Todorova – Professor, Wright State University

What can be done to continue to slow down inflation?

“Because higher overall prices are caused by an increase in the money supply, the best thing we could do to slow down price inflation is to stop the growth of the money supply. Something that the Federal Reserve has indeed been doing over the past year. Another thing that could help to bring down overall prices is to free the economy by reducing regulation, eliminating price controls, and reducing government spending, all of which tend to direct resources away from their most efficient uses, thereby reducing general productivity, lowering overall output, keeping overall prices higher than they need to be.”
Shawn Ritenour – Professor, Grove City College

“A coordinated approach involving monetary and fiscal policy is necessary to slow down inflation. The Federal Reserve is tightening monetary policy to anchor inflation expectations. Additionally, fiscal adjustments are crucial to controlling inflation in the post-pandemic era. Governments can implement contractionary fiscal policy such as reducing government spending or increasing taxes to reduce inflationary pressures.”
Wenyi Shen – Associate Professor, Oklahoma State University

Is raising interest rates a good or bad solution to control inflation?

“The Fed targeting higher interest rates per se is not what is needed; however, higher interest rates are a byproduct of halting monetary inflation. This is because the Fed injects new money into the economy by buying assets with the new money that ends up in commercial bank reserves, so banks expand credit, lowering interest rates to encourage more people to borrow. Halting the injection of new money would cause the credit expansion to cease so that the supply of loanable funds would be lower than it would be without more inflation. Interest rates would end up higher than they would be without inflation. So, the higher interest rates are a byproduct of what must be done, which is to stop inflating the money supply via credit expansion.”
Shawn Ritenour – Professor, Grove City College

“Raising interest rates is a fundamental policy tool for monetary authorities. It can effectively curb demand and help control inflation. More importantly, the monetary authority can anchor inflation expectations through forward guidance, which involves effectively communicating its inflation-fighting strategies. However, it takes two to tango. Fiscal policy must adjust primary budget surpluses to passively stabilize the long-run debt-to-GDP ratio, complementing the efforts of monetary policy.”
Wenyi Shen – Associate Professor, Oklahoma State University