Leading Indicators

Inflation in Greater Philadelphia: The August 2022 Update

This Leading Indicator provides an update on localized inflation rates for Greater Philadelphia after the release of latest August 2022 Consumer Price Index (CPI) estimates by the Bureau of Labor Statistics. As prices slow down for the first time in the last twelve months, we unpack the impact of inflation in the region and benchmark it with price changes in other large metropolitan areas across the U.S.

 

What You Need to Know

  • Greater Philadelphia’s inflation rate decreased for the first time in twelve months from 8.8% in June 2022 to 8.1% in August 2022.

  • Among a panel of large U.S. metropolitan regions, Greater Philadelphia had the fifth lowest average inflation rate between August 2021 and August 2022.

  • Inflation rates decreased in August 2022 for most metropolitan regions in our sample, except for Greater Atlanta, Greater Miami, and Greater Phoenix, which saw increases in their inflation rates.

  • The Energy and Transportation CPI components saw the largest decreases in inflation rates in Greater Philadelphia following the national trend. The region’s Energy inflation rate decreased from a high of 46% to 29.5% between June and August 2022, while the Transportation inflation rate decreased by 8.3 percentage points between April and August 2022.

  • Food and Beverages and Medical Care continue to experience increasing inflation rates during the third quarter of 2022 in Greater Philadelphia. The Food and Beverages inflation rate was 10.5 percentage points higher in August 2022 compared to August 2021; inflation rates for Medical Care increased by 6.2 percentage points during the same period.

  • Disaggregating the Food CPI components shows that grocery items like cereals, dairy products, and fruits and vegetables are driving high food prices with an average increase of 20.5% between August 2021 and August 2022.

 

State of Inflation in Greater Philadelphia and the U.S.

Figure 1 shows changes in inflation rates for Greater Philadelphia and the U.S. city average from August 2021 to August 2022. The CPI decreased for the first time this year in Greater Philadelphia dropping from 8.8% to 8.1% and continued its decline at the national level from 9.1% to 8.3%. This continues to be one of the highest rates of inflation seen in both Greater Philadelphia and in the US over the last 40 years. However, the decrease in prices in August 2022 is a slight break from the precipitous increase in inflation rates seen since the summer of 2021. Given these unprecedented times for the U.S. economy, it is difficult to say whether this recent decrease will continue in the coming months. While supply chains are stabilizing [1], increases in food and housing prices might continue the uptick in overall inflation rates [2].

 

FIGURE 1 

SOURCE: U.S. Bureau OF Labor Statistics, Consumer Price Index for All Urban Consumers (CPI-U)

 

While inflation rates in Greater Philadelphia remain one of the highest seen in the region over the last few decades, they still trail CPI increases seen in other large U.S. metropolitan regions. Figure 2 shows monthly inflation rates for Greater Philadelphia, the U.S., and a panel of large U.S. metropolitan regions since August 2021. It ranks metropolitan regions along the y-axis by their average inflation rates between August 2021 and August 2022, but also shows the breakdown of each metropolitan region’s inflation rate trajectories for the past twelve months using shades of red – where darker shades indicate higher inflation rates. Greater Philadelphia had the fifth lowest average inflation rate between August 2021 and August 2022 where it remained between 4.6% and 8.8%. This puts it lower than smaller metropolitan regions, like Greater Detroit and Greater St. Louis. Outliers highlighted in our previous inflation update, like Greater Phoenix and Greater Atlanta continue to experience the highest rates of inflation at 13% and 11.7% respectively as of August 2022. In fact, Greater Phoenix continued to see its inflation rate climb from 5.1% to 13% from August 2021 to August 2022. On the other end of the spectrum, Greater San Francisco and Greater New York City held the spot for the lowest average inflation rates during this period, hovering between 3.7% to 6.8%.

 

FIGURE 2 

SOURCE: U.S. Bureau OF Labor Statistics, Consumer Price Index for All Urban Consumers (CPI-U)

 

Interestingly, the decrease in August 2022 inflation rates was not experienced across all metropolitan regions. In our panel, Greater Atlanta, Greater Miami, and Greater Phoenix all saw an increase in their respective inflation rates between June and August 2022. This may indicate that the decline in August 2022 estimates across many regions may not spell an end to inflation in the U.S.

 

Price Changes in Consumer Price Index (CPI) Components

To understand the driving force behind the recent decrease in inflation rates for Greater Philadelphia, we dug deeper into components of the CPI and found that Energy and Transportation prices saw a dramatic decrease between June and August 2022. Figure 3 shows price changes in eight different CPI components from August 2021 to August 2022 for both Greater Philadelphia as well as the national average. Prices in the Energy estimate decreased from a high of 46% to 29.5% in Greater Philadelphia between June and August 2022. Similarly, Greater Philadelphia’s Transportation estimate also saw a decrease of 8.3 percentage points between April and August 2022. These two CPI component estimates seem to be the primary driving forces behind decreasing inflation rates in Greater Philadelphia, which were further aided by modest decreases in prices observed in the Recreation and Education estimates. 

 

FIGURE 3 

SOURCE: U.S. Bureau OF Labor Statistics, Consumer Price Index for All Urban Consumers (CPI-U)

 

While many of Greater Philadelphia's CPI components saw decline between June and August 2022, Food and Medical Care saw significant increases. Figure 3 shows the upward trend in inflation rates for these sectors which directly impact the cost of living for residents. Food prices were 10.5 percentage points higher in August 2022 compared to August 2021, whereas inflation rates for Medical Care increased by 6.2 percentage points over the same twelve-month period. The latest August 2022 CPI numbers also show that local prices for these components are higher than the national average.

 

Figure 4 shows price trends for subcomponents of the Food and Beverage CPI component in Greater Philadelphia between August 2021 and August 2022. This breakdown of Food categories shows that only meat and nonalcoholic beverages saw a decrease in prices this year. Most subcomponents, especially grocery items like cereals, dairy products, and fruits and vegetables, continued to increase in August 2022. In fact, cereals, dairy products, and fruits and vegetables saw an average increase of 20.5 percentage points between August 2021 and August 2022. While supply chains remain somewhat disrupted due to the pandemic's economic lockdowns and the War in Ukraine, a major driver of food pricing increases in the U.S. is the cost of transportation [3,4]. At the local level, Greater Philadelphia is experiencing higher costs for transporting food from farms to grocery stores which has further led to higher prices for consumers [5]. Since it generally takes time for prices to catch up in the Food sector [3], it will likely take a few months before the recent decrease in overall transportation costs affects food prices for consumers. 

 

FIGURE 4 

SOURCE: U.S. Bureau OF Labor Statistics, Consumer Price Index for All Urban Consumers (CPI-U)


The Takeaway

Inflation rates in Greater Philadelphia and the U.S. declined for the first time in August 2022 after a continuous increase since August 2021. However, different sectors of the U.S. economy are creating opposing inflationary pressures, which make it difficult to speculate inflation rates in the coming months. While the Energy and Transportation sectors have seen a decline in prices, inflation rates for Medical Care and Food continue to increase. Economists have also cited the continued unaffordability of housing prices and rent as major causes of concern for continued inflation [6], however, localized trends for Greater Philadelphia show that the inflation rates for Housing declined between June and August 2022. Greater Philadelphia remains behind the U.S. and other metropolitan regions in experiencing peak inflation, but the inflationary pressures still exist in our local economy that might increase overall prices in the last quarter of this year.

 

Works Cited

[1] “Global supply chain activity stabilizing despite Omicron variant spike | CSCMP’s Supply Chain Quarterly.” https://www.supplychainquarterly.com/articles/6108-global-supply-chain-… (accessed Sep. 20, 2022).

 

[2] G. Iacurci, “There is 'nowhere to hide’ for consumers as inflation hits food, gas, housing,” CNBC. https://www.cnbc.com/2022/03/10/theres-nowhere-to-hide-for-consumers-as… (accessed Sep. 20, 2022).

 

[3] “Here’s Why Food Prices Are Still Rising – Forbes Advisor.” https://www.forbes.com/advisor/personal-finance/why-are-food-prices-sti… (accessed Sep. 20, 2022).

 

[4] foodnavigator-usa.com, “Why are food prices continuing to go up while inflation eases in other categories?,” foodnavigator-usa.com. https://www.foodnavigator-usa.com/Article/2022/08/15/why-are-food-price… (accessed Sep. 20, 2022).

 

[5] J. N. DiStefano, “Rising costs of fruit and vegetables hit the Philadelphia Wholesale Produce Market,” https://www.inquirer.com. https://www.inquirer.com/business/inflation-food-fruit-vegetables-usda-… (accessed Sep. 20, 2022).

 

[6] “Lara Rhame on Bloomberg: What is the August CPI data signaling?,” FS Investments, Sep. 15, 2022. https://fsinvestments.com/lara-rhame-on-bloomberg-august-cpi-9-13-22/ (accessed Sep. 20, 2022).