Consumers around San Diego County are probably scratching their heads in response to a new report from the Bureau of Labor Statistics showing the region’s rate of inflation is among the lowest in the nation.
The report shows that the Consumer Price Index, which measures changes in retail prices across a broad range of products and services, rose by 1.3 percent over the first six months of 2012 and has advanced just 1.7 percent during the past 12 months.
San Diego has the third lowest rate of inflation among the 27 metropolitan regions in the United States tracked by the Bureau of Labor Statistics.
"I have been following these numbers for a long time, and probably should not be at all surprised," said Kelly Cunningham, senior fellow and economist at the National University System Institute for Policy Research. "In light of rising energy prices, shelter costs, food, medical care, and other consumer goods and services, it is difficult to conceive of price overall not rising at a higher pace."
The Bureau of Labor Statistics reports that the cost of living in San Diego rose 3 percent during 2011, fueled by a sharp surge in energy prices. That followed an increase of the local Consumer Price Index of just 1.3 percent in 2010 and no increase in 2009, the lowest annual inflation recorded in the region since 1954.
In a March report from the institute, Cunningham had forecast the cost of living in San Diego County would likely increase by 3.1 percent in 2012.
Another local economist said there was one particular factor that led to the modest increase in the cost of living in San Diego.
"The reported inflation rate is being heavily constrained by the large overweight — over a third of the index locally — given to the cost of shelter," said Lynn Reaser, chief economist at Point Loma Nazarene University’s Fermanian Business & Economic Institute. "The BLS bases such costs as either the amount you pay explicitly to rent your home or, if you are the owner, the amount you would theoretically pay if you rented the dwelling. Although rents have started to rise, the overhang of distressed homes on the market has restrained shelter cost increases."
The San Diego report on inflation followed another report from the Bureau of Labor Statistics showing very little evidence of higher prices across the nation. Over the past 12 months, the national Consumer Price Index has increased just 1.4 percent.
"That consumer prices are weak is apparent in the July CPI report," said Robert Dye, chief economist at Comerica Bank. "However, it is very important to ask why consumer prices are weak, especially because of the ongoing intrigue about possible Federal Reserve policy actions. The Consumer Price Index was unchanged in July as energy prices fell for the fourth consecutive month."
However, he points out that energy prices have moved sharply higher in August and will likely impact food prices as well, putting upward pressure on the cost of living in coming months, something Reaser agrees with.
"Gasoline prices will be heavily influenced by events in the Middle East but are likely to stay relatively high as tensions in the region persist," Reaser said. "The drought is likely to push various food prices higher over the coming year. The problem for many San Diego residents may be the fact that wage increases will also be limited, implying that it will be harder to make significant headway against even moderate inflation."