Phoenix Led the Nation in Inflation in 2022, but Rise May Slow in 2023

By Haley Smilow

After a year in which Metro Phoenix saw the nation’s highest inflation rate for metro areas, experts say consumers can expect inflation to ease in 2023 – but warn that it’s not going away entirely.

The consumer price index for Phoenix-Mesa-Scottsdale in October, the most recent month for which data is available from the Bureau of Labor Statistics, was 12.1% higher than it was in October 2021. The next-highest metro areas were Atlanta, which posted a 10.7% increase for the year, followed by Tampa-St. Petersburg at 10.5% and Miami at 10.1%.

Price increases were up across the board, with higher prices for fuel, food, clothing and more. In Arizona, the biggest increases came in the price of gas, which was up 41% from October 2021 to October 2022 – although that recently reversed course – but experts say the biggest driver of the inflation index was the cost of housing.

Mark Stapp, a professor at Arizona State University’s W.P. Carey School of Business, said shelter accounts for one-third of the consumer price index, which is why Arizona is facing such high inflation rates.

“The index is a composite. One of the larger elements of that composite is related to shelter,” said Stapp, who is also the director of the Center for Real Estate Theory and Practice at the Carey School. “It can make up 30-40%, so a significant part of the estimate of what inflation is in Arizona is that shelter component.”

George Hammond, the director of the Economic and Business Research Center at the University of Arizona’s Eller College of Management, agreed that shelter has driven inflation in the Phoenix area.

“The major reason why Phoenix’s inflation rate is running so much faster than the national average, is what’s going on in the housing market,” Hammond said. “Housing is by far the biggest single category in the price index, so it has a huge influence on what happens.”

There are several reasons for the rise, they both say. The steady increase in the number of people moving to Arizona jumped with COVID-19, creating more demand for what was already a short supply of housing for renters and homeowners. It created what Hammond described as a “recipe for really rapidly rising house prices and rents.”

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