Los Angeles in Top Five Major Cities Feeling Sting of Inflation

With the year-over-year inflation rate at 2.9% in December, 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.

Biggest Inflation Problem	Smallest Inflation Problem
1. New York, NY 2. Atlanta, GA	19. Anchorage, AK 20. Riverside, CA
3. Honolulu, HI	21. Minneapolis, MN
4. St. Louis, MO	22. Phoenix, AZ
5. Los Angeles, CA	23. Houston, TX

To view the full report and your city’s rank, please visit:
https://wallethub.com/edu/cities-inflation/107537

Key takeaways and WalletHub commentary are included below in text and video format.

Expert Commentary

What are the main factors currently driving inflation?

“The current inflation is driven by a combination of both demand-pull and cost-push factors. On the demand side, strong consumer spending continues to persist despite higher prices, as shown by GDP and consumption growth in Q3 2024. The tight labor market, with low unemployment rate and increased worker bargaining power, also contributes to inflationary pressures. On the supply side, the economy is still recovering from pandemic-related disruptions, including supply chain shocks and higher production costs. Moreover, geopolitical tensions affect global supply chains (including conflicts in Ukraine and Middle East). These supply constraints are particularly evident in key sectors such as housing, where limited availability has driven up prices. The impact of these factors is reflected in significant price increases across various categories, including housing costs (which comprise over 40% of the CPI basket), shelter, food, and medical expenses.”
Tongyang Yang, Ph.D. – Assistant Professor, Widener University

“Well, the biggest problem with inflation is understanding it. For example, the current rate of inflation is quite normal. For almost a year already, we have had quite normal inflation. It just doesn’t ‘feel’ like that for most people. And that’s because ‘normal inflation’ means the prices stop increasing, but they are already too high for most goods. The only solution here is to increase wages and have significant regulatory intervention in the labor market to shift the balance of power from corporations to people. Since the pandemic, US corporations have made record profits and monopolized many markets, allowing them to increase prices ‘just because they can.’ At the same time, there are massive layoffs and job creation is struggling.”
Oleg Ivanets, PhD – Assistant Professor; Chair, Department of Financial Studies, Concordia University Wisconsin / Ann Arbor

What can be done to continue to slow down inflation?

“Policymakers don’t have many tools to slow inflation. The only games in town are monetary and fiscal policy. When the Fed raises the interest rate, that tends to put a damper on the economy, and that in turn will bring inflation down. Tax increases and spending cuts would accomplish the same thing, but that’s harder to do for obvious reasons.”
Kenneth N. Kuttner – Professor, Williams College

“In the short-to-medium term, interest rate policy is still by far the best tool for taming inflation. The Fed has revised its projected interest rate path, suggesting interest rates will not fall much in 2025. This seems appropriate given the recent data, even though I disagree somewhat about the likely sources of inflation. Economists disagree a lot about how tight the connection is between government spending and inflation, but longer-term I think most economists would support a fiscal policy that is more counter-cyclical: meaning, the government should save money when the economy is strong and spend more money when the economy is weak. Instead, we’ve constantly raised government deficits in booms and in busts for the last 25 years.”
Ryan Chahrour – Professor, Cornell University

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

“The current rate of inflation tells us that demand for products exceeds supply. Either demand needs to be reduced, or supply needs to be increased, or else over the next couple of years, households’ real income (purchasing power) will fall as consumer prices increase faster than workers’ wages. If household incomes fall in terms of purchasing power, we will enter a recession as consumer spending slows down.”
George Langelett – Professor, South Dakota State University

“The current inflation rate is slightly above the Federal Reserve’s target. It is too high, but not by much. Overall, inflation – along with labor market indicators and consumption levels – are all consistent with an economy that is on solid footing overall.”
Ryan Chahrour – Professor, Cornell University