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Inflation decline opens regional inflation differentials


The annual inflation rate of the U.S. declined to (roughly) zero at the beginning of 2015, and it has remained close by ever since. But is inflation equally low in all regions? To find out, we look at data series in FRED that track overall inflation for the U.S. and inflation for each of the four Census regions: the Northeast, Midwest, South, and West. As the graph shows, all U.S. price growth over the past eight months has come from the West; since January, inflation in the West has been at least a full percentage point above that of the other three regions. If the West were excluded from the picture, then August’s national inflation rate of 0.20% would instead have been –0.19%.

In a recent On the Economy blog post, we showed that the lion’s share of this difference between inflation in the West and inflation in the other three regions is explained by differences in prices for energy and shelter. Energy inflation explains between 42% and 70% of the gap, depending on the region, and shelter inflation explains between 37% and 51% of the gap.

Does it matter that shelter inflation is a key driver of these regional differences? If shelter inflation in the West is driven by low interest rates, then one implication for monetary policy is that normalization (or “liftoff”) could push inflation in the West down to the levels observed in the other three regions.

How this graph was created: Search for “CPI” and select the series “Consumer Price Index for All Urban Consumers: All Items” (monthly, not seasonally adjusted). Change the units from “Index 1982-1984=100” to “Percent Change from Year Ago.” Then add the four regional CPI series to the graph by searching for the following series IDs: CUUR0100SA0, CUUR0200SA0, CUUR0300SA0, and CUUR0400SA0. Also change the units for each of these to “Percent Change from Year Ago.” Finally, restrict the sample to start in January 2014 by using the settings above the graph on the right.

Suggested by Alejandro Badel and Joseph McGillicuddy

View on FRED, series used in this post: CPIAUCNS, CUUR0100SA0, CUUR0200SA0, CUUR0300SA0, CUUR0400SA0


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