Phoenix-area inflation continues its gradual cooling, but the latest measure shows consumer price pressures here remain among the steepest in the nation even as they declined by one percentage point since the last reading.
The local Consumer Price Index for the Phoenix-Mesa-Scottsdale area increased at an 8.5% rate over the 12 months ending in February, the Bureau of Labor Statistics said today. Nationally, inflation ran at a 6% clip over the 12 months through February, showing that the Federal Reserve’s policy of raising interest rates has achieved some success, though the new banking crisis might force a change in strategy.
“It is a tough call for the Fed as they decide whether to continue tightening with a quarter-point hike or stand pat on March 22,” the date of the next central bank meeting, wrote Nationwide Chief Economist Kathy Bostjancic in a commentary. “It is now clear that inflation is not the sole focus of the Fed, as it now needs to take into consideration financial stability and lending conditions.”
Two banks failed over the past week, including Silicon Valley Bank, which employs several hundred people at a support center near Tempe Town Lake.
Money:Silicon Valley Bank failure could affect employees at large Tempe operation
It’s Phoenix vs. Florida for inflation crown
Metro Phoenix has stayed a hotbed for inflation for more than a year, driven largely by higher prices for homes and apartments. Metro Phoenix inflation hit a peak of 13% over the 12 months ending in August 2022. Consumer prices here rose 9.5% for all of 2022, giving the area the nation’s second-highest metro inflation rate last year, after Miami at 9.9%.
But where Phoenix inflation ranks currently among cities is unclear, partly because the BLS hasn’t yet provided a February update for Miami.
In addition, the BLS tracks inflation on a different schedule for some metro areas including the Tampa-St. Petersburg area, which is on an odd-month cycle, unlike Phoenix and Miami, which are tracked on even months. Tampa-St. Petersburg had an 8.9% inflation rate for the 12 months through January, putting it above the 8.5% rate for Phoenix, currently in second place.
The BLS calculates inflation every month for New York City, Los Angeles and Chicago but it tracks it on alternating months for 20 other metro areas.
Economy:CPI inflation rate slows to 6% in February, but prices post strong monthly gain
Fed policies under more scrutiny
The latest BLS report showed that inflation is easing, but at a moderating pace.
“The shelter component continues to dominate, accounting for almost half of the increase in headline inflation over the last year,” wrote Peter Essele, head of portfolio management at Commonwealth Financial Network, in a commentary. Rents and home prices have declined lately, but those trends haven’t shown up yet in the overall inflation readings, he added.
“Historically, there’s a 12-18 month lag between changes in the housing market and those changes showing up in the shelter component of CPI,” Essele continued, suggesting that lower housing costs will show up in the inflation numbers starting around the middle of the year.
Essele viewed the latest inflation numbers as meeting expectations, but Bostjancic at Nationwide sees inflation as cooling only gradually, which will keep the Fed in the “hot seat” over how to chart interest-rate policies. Absent the fallout from the Silicon Valley Bank failure, the central bank probably would have raised interest rates another 0.5% at its upcoming meeting on March 22, she said.
“We see the unfortunate banking developments and ensuing tightening of bank lending standards as reinforcing our view that the economy is headed for a recession in the second half of 2023,” she added.
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