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Phoenix ranks No. 1 in the nation for inflation. Here's why

Food, shelter and gas prices all post double-digit increases, but there are signs inflation might be easing

PHOENIX — Valley residents like Ashley Carey are finding a way to get by. 

“To pay my rent for one bedroom," she says, "it takes a whole paycheck from my regular job and then a paycheck from my part-time job."

The soaring cost of a place to live is just one reason the Phoenix metro area owns the highest inflation rate among the nation's metro areas, according to a new government report released Tuesday. 

By one measure, the Valley's 13 percent inflation rate over the last 12 months is the highest recorded for a city in 20 years. The national rate for August was  8.3 percent. 

Less than two years ago, in December 2020, inflation was a non-issue in the Valley. Overall consumer prices were rising at an annual rate of 0.5 percent.

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'There's a lot to fix'

“These are unusual times and these are unusual conditions,” said Jim Rounds, an economist and policy analyst at Rounds Consulting. He has tracked the Arizona economy for 25 years.

“When the economy is in a mess, and there's a lot to fix, it just takes longer to fix.”

Rounds said the Valley's status as one of the fastest-growing places in the country becomes a weakness when supplies of food, gas and housing can't keep up. 

“We're having problems with affordability across the entire country,” he said. “But Arizona and the greater Phoenix area are just unique in that we're also high growth, and that puts extra strain on it.”

Is inflation easing? 

The new data from the U.S. Bureau of Labor Statistics suggests inflation might be easing. 

Here in the Valley, the 0.8 percent increase in the inflation rate last month was the smallest bump in a year.

The key consumer spending categories of food, shelter and gas were a mixed bag:

  • The Valley price index for regular unleaded gasoline skyrocketed 33 percent from a year ago, but that was after a 26 percent plunge since June.
  • Renters took a big hit over the last 12 months, with a 21 percent inflation. But increases slowed to low single digits in June and July.
  • Prices for food at home - largely groceries - rose 15.7 percent from a year ago, and 4.4 percent since June.

RELATED: Driven by consumers, US inflation grows more persistent

Forecast for consumer prices

“Prices have been stabilizing at different rates,” Rounds said. “We started seeing fuel prices go down… But it's going to take a while for these imbalances to fix themselves.

“We have a supply chain problem and we also have a labor shortage problem. That's going to push up the price of goods, and it's going to push up wages, which means we're going to be paying a little bit more.”

Rounds says he doesn’t expect to see significant price decreases until 2024.

State's minimum wage going up

There’s good news for low wage earners in the inflation report.

The rising inflation rate will trigger a raise next year for any Arizona workers earning the minimum wage. 

Starting Jan. 1, the statewide minimum wage will climb by $1.10 an hour, to $13.90. In Flagstaff, the minimum wage for workers within the city limits will jump to $16.80 an hour. 

The higher minimum wages were approved in both Flagstaff and statewide in 2016. The mechanism for the wage hikes ties the minimum wage to the U.S. inflation rate. 

By next January, the Arizona minimum wage will have jumped 73 percent since 2016.

Rounds says the wage increase might not matter much, given that the high demand for labor has priced many entry-level positions above the new minimum page.

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