Inflation Ticks Down

With the year-over-year inflation rate at 2.9% in July, slowing below 3% for the first time since March 2021, the personal-finance website WalletHub today released its updated 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?

“As Milton Friedman says, inflation is and always will be a monetary phenomenon. So, the main factors, in my opinion, are excessive government spending and the Federal Reserve’s purchase of treasury securities to finance such spending. The Fed’s balance sheet is now 8.9 trillion, compared to 870 billion before the financial crisis. When there is too much money in the economy, it inflates the price of everything, thus driving inflation.”

Xu Jiang – Associate Professor, Duke University

“Several factors are contributing to the current inflationary pressures… Supply chain disruptions, which have persisted since the COVID-19 pandemic, continue to limit the availability of goods, driving prices higher… Rising energy costs, influenced by geopolitical tensions and global demand, have significantly impacted transportation and production expenses. For instance, the conflict between Russia and Ukraine has disrupted oil supplies, causing global oil prices to surge. This increase in oil prices has led to higher gasoline prices for consumers and increased costs for businesses that rely on transportation and energy-intensive production processes. These higher costs are then reflected in the prices of goods and services, contributing to inflation. Labor shortages and increased wage demands are also pushing costs upward. The pandemic has led to significant changes in the labor market, with many workers reevaluating their careers or leaving the workforce altogether. This has resulted in a tight labor market where businesses must offer higher wages and better benefits to attract and retain employees… Expansive fiscal policies and significant monetary stimulus measures implemented during the pandemic have increased the money supply, adding to inflationary pressures… Moreover, the tax system can impact inflation through various channels… The upcoming federal election can also impact inflation in several ways. Policy uncertainty often accompanies elections, affecting business investment and consumer spending… Financial markets can also react to election outcomes, influencing inflation through changes in asset prices and exchange rates… Lastly, elections can affect the confidence of consumers and businesses, with high confidence potentially driving up demand and inflation, while low confidence can reduce spending and investment, easing inflationary pressures.”

Doron Narotzki,  S.J.D. – Associate Professor; Director of the MTax Program, The University of Akron

What can be done to continue to slow down inflation?

“It seems like the increased interest rates have done some of this work. The Biden administration and Congress have also promised to investigate the PPP program and go after companies that defrauded the government. They have also promised to go after price gougers. Lots of promises, which would be a good start if they are kept, but there has not been a lot of actual movement, at least not based on publicly available information. More bluntly, price controls on basic necessities would be the best solution for inflation. Preventing companies from raising prices – perhaps even compelling them to lower prices – would make the biggest impact for most people. Labor organizing and increasing worker control is another great way to address inflation. Not only can militant rank-and-file-led unions pressure the companies they work for not to raise prices unless absolutely necessary, but even in their traditional, more bureaucratic form, unions help workers increase their pay and benefits to meet the rising prices.”
Dr. Bryant William Sculos – Lecturer, The University of Texas Rio Grande Valley

“The best way to drive down inflation is to reduce government spending and reverse the Federal Reserve’s purchase of treasury securities to reduce the supply of money in the economy.”
Xu Jiang – Associate Professor, Duke University

What does the current inflation rate tell us about the future of the economy?

“Since inflation has dropped dramatically in 2024, interest rates will likely drop. The drop in interest rates should reduce borrowing costs for companies and stimulate the economy. However, the U.S. is due for a recession, so a drop in interest rates might not lead to economic growth and stock market increases if the country is in the early phase of a recession. It is hard to predict the future of the economy because we do not really know what the reasons will be for interest rates being cut by the Federal Reserve. Are interest rates being cut because of reductions in inflation? Or are interest rates dropping because the country is entering a recession caused by the high interest rates?”

Dr. David Shock – Professor, Kennesaw State University

“The current inflation rate provides insight into ongoing economic challenges and potential future trends. Persistently high inflation rates suggest that supply chain disruptions, labor market imbalances, and energy price volatility are significant issues that may take time to resolve. This persistence indicates that central banks may continue to pursue tighter monetary policies, which could slow economic growth in the short term. However, if inflation begins to stabilize and decrease, it may signal that the economy is adjusting and that the measures taken to control inflation are effective. Ultimately, the current inflation rate underscores the importance of adaptive and responsive economic policies to navigate the complexities of the post-pandemic economy. Additionally, the tax system plays a crucial role in shaping demand and supply. For example, changes in consumption taxes can directly influence prices, while corporate tax adjustments can impact business investments and production capacity. The potential impacts of the upcoming federal election can also significantly influence the future economic landscape and inflation trends. Policy uncertainty, market reactions, and shifts in fiscal and trade policies associated with elections can affect inflation dynamics and overall economic stability.”

Doron Narotzki,  S.J.D. – Associate Professor; Director of the MTax Program, The University of Akron