Leading Indicators

Inflation in Greater Philadelphia: The October 2022 Update

This Leading Indicator provides updates on localized inflation rates for Greater Philadelphia after the release of latest October 2022 Consumer Price Index (CPI) estimates by the U.S. Bureau of Labor Statistics. As price increases continue to slow down from August 2022, we unpack the impact of inflation in the region and benchmark it against price changes in other large metropolitan areas across the U.S.

 

What You Need to Know

  • Greater Philadelphia’s inflation rate continued to decline, from 8.1% in August 2022 to 7.8% in October 2022.

  • Among a panel of large U.S. metropolitan regions, Greater Philadelphia had the sixth lowest inflation rate in October 2022.

  • Inflation rates decreased in October 2022 for all metropolitan regions in our sample, except for Greater San Francisco, which already has the lowest inflation rate in our panel and saw a modest increase in October 2022.

  • The Energy and Transportation CPI components remain the main drivers behind price decreases seen in Greater Philadelphia in October 2022. The region’s Energy inflation rate decreased from 29.5% to 22.2% between August and October 2022, while the Transportation inflation rate decreased from 12.6% to 8.4 % during the period.

  • The Housing CPI component continues to experience increasing inflation rates in October 2022. Housing prices in Greater Philadelphia increased from 8.5% in August to 9.1% in October 2022 and remains higher than the national average.

  • Disaggregating the Housing CPI component shows that utility services coupled with increase in rental and ownership prices are driving increasing Housing prices in Greater Philadelphia.

 

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

Figure 1 shows changes in annual inflation rates for Greater Philadelphia, the U.S., and a panel of large U.S. metropolitan regions. It ranks metropolitan regions along the x-axis by their inflation rates in both August 2022 (blue) and October 2022 (orange), where the vertical line from blue to orange details the recent change in annual inflation rates. The corresponding blue and orange horizontal lines show the U.S. city average inflation rates for the respective months. The U.S. saw an overall decrease in prices both at the national level as well as in major metropolitan regions. The CPI continued to decrease for Greater Philadelphia from 8.1% in August 2022 to 7.8% in October 2022 and continued its decline at the national level from 8.3% to 7.7%. This puts Greater Philadelphia with the sixth lowest inflation rate in our panel of metropolitan regions for the month of October 2022. Generally, metropolitan regions with higher inflation rates in August 2022 saw a greater change in prices in October 2022, with Greater Houston and Greater Baltimore seeing the largest decreases in their respective inflation rates among the panel of metropolitan regions. Greater San Francisco was the only region in our analysis which saw a slight increase in its prices in October 2022, but it still maintained the lowest inflation rate among the panel. The cool-off moment in prices seen in October 2022 has also been experienced by higher-inflation-prone regions like Greater Atlanta, Greater Miami, and Greater Phoenix. In our previous inflation update, we found these regions experiencing one of the highest inflation rates since August 2021. Given these unprecedented times for the U.S. economy, it is difficult to say whether this decrease will continue in the coming months, but the last two CPI numbers show initial signs of optimism.

 

FIGURE 1 

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

 

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 continue to be the main drivers behind price decreases seen in the region in October 2022. However, most sectors in Greater Philadelphia, excluding Housing, are also experiencing a cool-off period. Figure 2 shows price changes in eight different CPI components from August 2021 to October 2022 for both Greater Philadelphia as well as the national average. Prices in the Energy estimate continued to decrease from 29.5% to 22.2% in Greater Philadelphia between August and October 2022. Similarly, Greater Philadelphia’s Transportation estimate also saw its inflation rate decrease from 12.6% to 8.4 % between August and October 2022. 

 

FIGURE 2 

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 August and October 2022, Housing saw a slight uptick after seeing a decline from June to August 2022. Figure 3 shows the upward trend in inflation rates for the Housing CPI component which directly impacts the cost of living for residents. Housing prices in Greater Philadelphia increased from 8.5% in August to 9.1% in October 2022 and continued to remain higher than the national average.

 

FIGURE 3 

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

 

Figure 3 shows price trends for measures of the Housing CPI component in Greater Philadelphia between August 2021 and October 2022. This breakdown of Housing category shows that only Household Furnishings and Operations saw a decrease in prices this year. Most measures, especially Electricity and Gas Services saw a dramatic increase since August 2021. In fact, these utility services saw an average increase of 25.8 percentage points between August 2021 and October 2022. However, these price changes largely match the overall trends in the Energy CPI component. The more worrying pressure on Housing prices comes from increase in rental and ownership prices in Greater Philadelphia, which continue to increase in October 2022 and will continue to have long-term impact on overall Housing inflation [1]. We have been monitoring price increases across Greater Philadelphia’s housing market in our previous Leading Indicators as well.


The Takeaway

Inflation rates in Greater Philadelphia and the U.S. continue to decline in October 2022 after their initial decrease in August 2022. This is a positive sign that the Feds’ policy on limiting cash via high interest rates is working to curb inflation in the country. However, the unabated increase in housing costs continues to be an issue across Greater Philadelphia and the U.S. and needs to be monitored closely.

 

Works Cited

[1] “Housing Insights: Housing Poised to Become Strong Driver of Inflation | Fannie Mae.” https://www.fanniemae.com/research-and-insights/publications/housing-in… (accessed Nov. 15, 2022).