Leading Indicators

Inflation in Greater Philadelphia – Part 3: Looking in the CPI’s Basket of Goods

This data brief is the third part in our series covering the impact of inflation on Greater Philadelphia. In the second part of this series, we compared the inflation rate of Greater Philadelphia with the other top 20 metropolitan regions in the United States from 2011 to 2021 and found there to be stark regional differences in inflation rates – with Greater Philadelphia, and most of its peer Northeast metropolitan regions, seeing the lowest average inflation rates. Most of the recent increases in the national inflation rate have largely been driven by metropolitan regions in the West and South. For part three of this series, we dig deeper into the components of the Consumer Price Index (CPI) to explore which sectors of the U.S. economy have seen higher price increases in the last decade both at the national as well as the metropolitan level. 

 

What You Need to Know

  • The Bureau of Labor Statistics breaks down the Consumer Price Index (CPI) into eight general categories: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and energy.
  • When comparing the average ten-year inflation rates for each CPI category among the largest U.S. metropolitan regions, medical care, housing, and food are consistently the main drivers of metropolitan inflation, while apparel, energy, and education saw some price declines.
  • The highest average inflation rate among the largest U.S. metropolitan regions from 2011 to 2021 was for medical care in Greater Phoenix at 12.5 percent – 2.7 times the next highest inflation rate across all categories.
  • The most substantial price decreases, or deflation rates, in the past decade were found in the apparel category for both Greater St. Louis and Greater Tampa at -5.8 percent, respectively.
  • Greater Philadelphia had the lowest ten-year average inflation rate among the 21 metropolitan regions in the housing category, at 1.4 percent. This indicates that all other large U.S. metropolitan regions have seen greater average increases in housing prices over the past decade than Greater Philadelphia.
  • When compared to the national average inflation rate for the past decade, Greater Philadelphia’s inflation rates across all CPI categories remained below the national average – except for the apparel category.
  • With the onset of the pandemic, the difference between the average inflation rate for apparel in Greater Philadelphia and the U.S. went from 0.4 to 3.0 percent – with Greater Philadelphia far outpacing the national inflation rate.
  • Consistent with other metropolitan regions, medical care, food, and housing are the consistent contributors to Greater Philadelphia’s inflation rate in the past decade, while inflation rates for energy, transportation, and apparel have the most annual fluctuation.

 

Revisiting the Consumer Price Index

In the first part of this series, we noted that the Consumer Price Index (CPI) is a “basket of goods and services” used as a benchmark measure to track monthly changes in the cost of everyday goods. Figure 1 shows the breakdown of the CPI into eight major components, as defined by the U.S. Bureau of Labor Statistics, that are then further broken down into varying sub-categories. For example, the food and beverages category consist of nine sub-categories of different food groupings, like cereals and bakery products, fruits and vegetables, alcoholic beverages, etc. This allows analysts the ability to track various portions of the CPI to see the largest contributors to price surges or declines. For example, if beef prices suddenly increased across the nation because of decreased supply, the food and beverage portion of the CPI could increase and push up the national inflation rate.

 

Graph instructions

FIGURE 1 

SOURCE: Consumer Price Index for all Urban Consumers (CPI-U) from the U.S. Bureau of Labor Statistics

 

As discussed in part two of this series, geography and local socioeconomic trends impact portions of a metropolitan region’s CPI. For example, housing may have more influence over Greater San Francisco’s CPI than apparel or recreation [1], or Greater Boston may see higher inflation rates in energy because of its relative isolation in the Northeast corner of the country [2]. Diving deeper into the CPI’s components can also help us better understand what categories have the greatest influence over Greater Philadelphia’s inflation rates.

 

Metropolitan Regions’ Consumer Price Indices

Disaggregating the CPI basket demonstrates that metropolitan regions are impacted differently by price changes across different sectors. Figure 2 shows the average inflation rate of the eight categories of the CPI basket across the top 21 U.S. metropolitan regions from 2011 to 2021. Higher rates of inflation are shaded in red while deflation, or price decreases, are shaded in blue. Across all metropolitan regions, medical care, housing, and food are large drivers of inflation, while apparel, energy, and education saw more price declines. One standout is the 12.5 ten-year average inflation rate for Greater Phoenix’s medical care category – the highest inflation rate of any CPI category among the 21 metropolitan areas. This largely reflects the increases in health insurance premiums, some of the largest in the country, for that region in the late 2010s [3]. On the other end of the spectrum, Greater St. Louis and Greater Tampa saw significant price decreases in apparel over the past decade, with respective average ten-year inflation rates of -5.8. The vast differences in inflation rates for the apparel category across metropolitan regions is difficult to attribute; while the growth of online shopping in the 2010s may have significantly lowered prices in the past decade, the pandemic’s contraction of supply chains and recent U.S. trade wars may have increased pricing in some areas [4,5].

 

FIGURE 2

 

SOURCE: Consumer Price Index for all Urban Consumers (CPI-U) from the U.S. Bureau of Labor Statistics

 

In comparison with other metropolitan regions, Greater Philadelphia’s inflation rates largely hover close to zero – indicating modest growth or decline in pricing for everyday goods in the past decade. In fact, its highest ten-year average inflation rate, at 2.6 percent, was in the medical care category. This, however, was the sixth lowest inflation rate for a metropolitan region in that category; only Seattle, St. Louis, Boston, Chicago, and Denver saw lower rates of inflation. Greater Philadelphia also had the lowest ten-year average inflation rate among the 21 metropolitan regions in the housing category, at 1.4 percent. This means that all other large U.S. metropolitan regions have seen greater surges in housing prices over the past decade than Greater Philadelphia.

 

Comparing Greater Philadelphia’s Inflation with the Nation

Looking across CPI categories among the largest U.S. metropolitan regions further demonstrates that Greater Philadelphia remains more resilient to price shocks than many of its peer regions. To better understand how Greater Philadelphia compares with the national average, figure 3 compares Greater Philadelphia’s average ten-year inflation rate with that of the U.S. and isolates changes in inflation rates during the last ten months amidst the COVID-19 pandemic.

 

FIGURE 3 

SOURCE: Consumer Price Index for all Urban Consumers (CPI-U) within the Philadelphia-Camden-Wilmington, PA-NJ-DE-MD from the U.S. Bureau of Labor Statistics

 

Across almost all CPI categories, Greater Philadelphia’s inflation rate remains below the national average both within the past decade as well as the past ten months – except for the apparel category. For the past decade, Greater Philadelphia’s average ten-year inflation rate for apparel remained slightly above the national average (by 0.4 percent), but this gap widened in the past ten months with average apparel prices in Greater Philadelphia seeing limited growth (0.7 percent) while national apparel prices declined by 2.3 percent. Thus, during the pandemic the difference between the average inflation rate for apparel in Greater Philadelphia and the U.S. went from 0.4 to 3.0 percent, and it is not entirely clear why since disaggregated apparel CPI measures are not available at the metropolitan level. (There is speculation of the increasing cost of production and consistent consumer demand throughout the pandemic may be to blame [5,6,7]). For all other CPI categories, Greater Philadelphia’s average inflation rates largely mirror national trends with slightly less growth.

 

Greater Philadelphia’s CPI from Year to Year

One final component to understanding localized inflation is capturing the year-to-year changes of Greater Philadelphia’s inflation rate in the past decade. Figure 4 marks the annual inflation rates across Greater Philadelphia’s CPI categories from April 2011 to August 2021.

 

FIGURE 4

SOURCE: Consumer Price Index for all Urban Consumers (CPI-U) within the Philadelphia-Camden-Wilmington, PA-NJ-DE-MD from the U.S. Bureau of Labor Statistics

 

Inflation rates for energy, transportation, and apparel show the most annual variability – with energy seeing both the largest annual decline and growth rates of any CPI category in the region. From April 2014 to April 2015 energy pricing fell by 19.1 percent, but—after some ebbs and flows—rose by 19.8 percent from June 2020 to June 2021. The average annual inflation rate (shown in figures 2 and 3) smooths over these highs and lows.

 

Housing showed the least variability, with prices showing consistent annual growth in the past decade. Food and medical care also showed relatively consistent growth from year to year, with only a few bouts of pricing decreases between 2016 and 2018. Taken with figures 2 and 3, it seems that medical care, food, and housing are the consistent modest contributors to Greater Philadelphia’s inflation rate while energy, transportation, and apparel may serve to worsen or alleviate overall inflation – depending on the timing. In a global pandemic, for example, when supplies and products become limited, these more variable pieces of the CPI can see large pricing increases – just see how energy and transportation prices grew from December 2020 to June 2021 in figure 4.

 

The Next Steps

While Greater Philadelphia’s modest inflation may be a boon to the population, it is also important to note that even modest inflation can erode living standards for those of minimal means. Areas of high poverty and lower labor force participation, like Philadelphia, may see greater impact even if the increasing inflation rate is statistically negligible. In our next few pieces, we will operationalize these impacts to see the proportional impact of inflation in Greater Philadelphia in comparison with other metropolitan regions.

 

Read More About this Subject:

Inflation in Greater Philadelphia – Part 1: De-Mystifying Local Inflation

Inflation in Greater Philadelphia – Part 2: Comparing Metropolitan Inflation

 

Works Cited

[1] Sherman, Natalie. 2019. “Why US tech giants are putting billions into housing.” BBC News, 17 November. Retrieved from: (https://www.bbc.com/news/business-50295130).

 

[2] Van Voorhis, Scott. 2021. “New England and the South shoulder the nation's highest energy costs, WalletHub survey finds.” Utility Dive, 8 July. Retrieved from: (https://www.utilitydive.com/news/new-england-and-the-south-shoulder-the-nations-highest-energy-costs-walle/602989/).

 

[3] Christie, Bob. 2016. “Key facts about rising Arizona health insurance premiums.” Tuscon.com, 28 October. Retrieved from: (https://tucson.com/news/state-and-regional/key-facts-about-rising-arizona-health-insurance-premiums/article_a47dd56a-9d18-11e6-932f-afb173228d09.html).

 

[4] Ro, Sam. 2021. “Inflation hits online shopping.” Axios, 30 June. Retrieved from: (https://www.axios.com/inflation-online-shopping-dcad16c9-3fb8-4914-975a-a8f5d38751b3.html).

 

[5] Saha, Sanghamitra. 2021. “Cotton Prices Hit a 10-Year High: ETFs to Gain/Lose.” Nasdaq, 12 October. Retrieved from: (https://www.nasdaq.com/articles/cotton-prices-hit-a-10-year-high%3A-etfs-to-gain-lose-2021-10-12).

 

[6] Morris, Chris. 2021. “Is cotton the new lumber? Prices soar 18%.” Fortune, 5 October. Retrieved from: (https://fortune.com/2021/10/05/cotton-prices-rising-2021-clothing-costs-china-inflation-lumber/).

 

[7] Meyersohn, Nathaniel. 2021. “Shoppers are still spending despite rising prices and supply chain woes.” Keyt.com, 15 October. Retrieved from: (https://keyt.com/news/money-and-business/cnn-business-consumer/2021/10/15/shoppers-are-still-spending-despite-rising-prices-and-supply-chain-woes/).