Texas, Florida Cities Have a Big Inflation Problem

Inflation is a problem nearly everywhere, but not all city residents are equally affected.

The consumer price index increased by 0.3 percent from December to January, the Labor Department announced this week. That marks a 0.2 percent increase from the month before, and overall, inflation remains stagnant at 3.1 percent year over year.

The 3 percent-plus inflation rate is still far above the Fed's target rate of 2 percent, and despite constant interest rate raises, prices remain higher than hoped.

However, Americans aren't reporting the same level of frustrations, and despite lower average costs of living, two areas in Texas and Florida are seeing some of the worst inflation hits of them all, a new WalletHub report found.

The Dallas-Fort Worth and Miami-Fort Lauderdale metro areas came in number one and two for cities with the biggest inflation problems. Each one earned a score of 90.33 and 70.46 respectively for their level of inflation's impact.

Compared to a year ago, the Texas metro saw prices climb by 5.3 percent, while Miami's residents faced a 5.7 percent increase, the study showed. That's more than 2 percent higher than the national average.

The next highest inflation metro was New York City, which saw prices grow just 3.1 percent compared to a year ago.

The reasons for Dallas and Miami's particular problems come down to the unique challenges residents face in these areas, and part of it lies in the region's rapid population growth.

"Both regions have experienced rapid urbanization and a booming real estate market, resulting in increased housing costs," Keisha Blair, an economist and the founder of the Institute on Holistic Wealth, told Newsweek. "The demand for skilled labor has also driven up wages, contributing to overall inflationary pressures in these metropolitan areas."

The two cities were at the top of the list for most popular moving destinations during the pandemic, and that has consequences for the prices there today.

"The reasons at the time were clear," Alex Beene, a financial literacy instructor for the state of Tennessee, told Newsweek. "Both cities are not subject to a state income tax, weather tends to be on average warmer than most other parts of the country, and neither location was subject to the same pandemic-era restrictions many other major metro areas faced."

But today, the pandemic boom has made its mark on inflated housing prices and nearly every aspect of the local economy.

Vehicle insurance was one of the highest price upticks noted in the consumer price index, and Texans have seen some of the fastest-growing rates in the country.

Miami residents, meanwhile, have another insurance crisis.

"Property insurers have been withdrawing from the state in recent years due to high claims costs," Richard Barrington, a financial analyst for Credit Sesame, told Newsweek. "Having a smaller pool of surviving insurers can accelerate the rise of premium costs for property owners in Florida. So, in different ways, insurance costs seem to be contributing to the soaring cost of living in Dallas and Miami."

There's also a shortage of housing and workers in both states, and prices reflect that.

"Homeowners with older, low-interest mortgages are reluctant to put their properties on the market and give up those favorable mortgage terms," Barrington said. "Falling interest rates may help this, but that's a bit of a chicken-and-egg scenario: rates aren't going to come down much more before inflation eases."

Because unemployment is near a 50-year low, workers have been issuing strikes and moving out of certain industries, causing overall prices to climb upwards even more.

"This may actually worsen as Baby Boomers continue to move into retirement," Barrington said. "The inability of both governing parties to find a sensible response to the immigration problem is preventing a potentially win-win solution in the form of an influx of new legal workers to ease the labor shortage."

What Sparked Inflation?

Economists say the financial outlook shifted for the United States when the coronavirus pandemic hit, and the federal stimulus checks surged spending up, forcing inflationary pressures into the mix.

"The impetus to inflation was unquestionably the $5 trillion in Covid-related fiscal spending," Eric Leeper, an economics professor at the University of Virginia, said in the report. "At the time, policymakers communicated that these were gifts, rather than loans that would be paid back through higher taxes. People converted the gifts into spending, driving up inflation."

To mitigate the inflation problem, the Fed has issued a series of interest rate hikes in the hope that overall prices will come down. But in doing this, many Americans fall under financial pressure.

For those looking to buy a house in early 2024, a 7 percent mortgage rate puts them at a serious disadvantage compared to those who purchased in 2021 and saw a rate of just 3 percent.

"While there is uncertainty about how effective interest rates are, there is consensus among economists that raising interest rates does lower inflation somewhat," Aeimit Lakdawala, an assistant professor at Wake Forest University, said in the report. "However, interest rates are a blunt tool and rising interest rates can have widely varying impacts on households and businesses depending on their financial situation."