Twin Cities' inflation is lowest among a dozen U.S. cities and half the rate of the U.S.

Though it might not necessarily have felt like it, the Twin Cities had the lowest inflation rate last month among about a dozen other U.S. metro areas.

At 1.8%, the year-over-year change in the consumer price index for the Minneapolis-St. Paul region in May was also less than half that of the U.S. rate of 4%.

"It's good to live in Minneapolis right now," said Tyler Schipper, associate professor of economics at the University of St. Thomas.

He did add a caveat, though, that the data might not align with people's experiences at the grocery store, for example, where prices might still feel high. That's because this doesn't mean that prices are necessarily dropping — though in some cases they are — but that they're not going up as fast as a year ago.

"It's good news, and it's changing some of my perception of where the economy is at right now," he said, nodding also to recent stronger-than-expected jobs reports and low overall unemployment.

Inflation has cooled off quite a bit in recent months after shooting up a year ago at the fastest pace in four decades. It peaked at 8.7% in May 2022 for the Twin Cities and at 9.1% in June 2022 for the U.S. amid supply chain bottlenecks, the war in Ukraine and heightened demand for some products and services coming out of the pandemic.

Since then, prices at the pump have dropped significantly, and the rapid increases in grocery costs have moderated. In addition, prices for services such as airfare have also dropped, the May data showed.

Still, the previous price increases in the past couple of years have added up and made it harder for many people to make ends meet.

"It's still affecting my life," said Alfred Rosario as he stood by his truck in downtown Minneapolis. "I don't go to the grocery store as much. I pretty much plan meals that are cheaper, put half a tank of gas in instead of a full tank of gas. Everything is just really expensive."

Others have noticed inflation slowing down a bit, especially when it comes to gas prices, such as Spolinsky Jacox, who works for Metro Transit.

"I actually went and bought milk this morning and noticed it's almost $5 a gallon, so I don't know that that's necessarily gone down," she said. "But there are some things that have slowed. But there are still other things that are expensive."

The popsicles she buys for her grandchildren used to be $2 and change but now are almost $5, she added.

"It's going to take some time for people to reset their expectation about prices in this story about inflation moderating," Schipper said. "It's not about going back to pre-pandemic prices."

Instead, he said hopefully those bills have started flattening out a bit so they're more consistent and consumers aren't experiencing as much sticker shock from week to week.

The year-over-year inflation rates for both the Twin Cities and the U.S. last month were the lowest they've been in more than two years. But the U.S. rate is still above the Federal Reserve's target of 2%.

So far this year, inflation around the Twin Cities has fallen faster than in many other parts of the country. In March, for example, the Twin Cities consumer price index rose 3.4% compared to a year ago vs. 5% for the U.S.

A big factor is housing costs — and rental costs in particular — which have been moderating more quickly here than in other parts of the country. In May, shelter costs rose just 4% year over year in the Twin Cities region, compared to 8% for the U.S. In other metros, such as Dallas and Tampa, that metric jumped 9.9% and 13.9%.

"We've got the ability to both sprawl and build up in a way that other communities can't necessarily do," said Louis Johnston, an economics professor at the College of St. Benedict and St. John's University. "We can build more apartment housing faster than other places."

While that doesn't mean that rent is going down or staying the same, it has helped keep the growth rate of rents lower in the Twin Cities than other places, he added.

Among the dozen metro areas for which the Bureau of Labor Statistics logged a consumer price index last month, the Tampa-St. Petersburg-Clearwater region posted the highest year-over-year increase at 7.3%. San Diego came in at 5.2%, Denver at 5.1%, Dallas-Fort Worth at 4.7%, Chicago at 3.3% and Washington, D.C., at 3.1%.

Johnston added there's not just one inflation rate. In addition to regional variability, how individuals and households experience inflation within the same geography can also differ.

"It depends on what kind of food you buy, what kind of housing you've got, what kind of vehicle you drive," he said. "How much you use your medical care, whether you send your kids to private school or public school. All of those things make a huge difference."

The May inflation figures came out as Federal Reserve officials start a two-day meeting this week to decide whether to raise interest rates again to help bring down inflation. They're expected to take a pause this month after 10 consecutive rate hikes since March 2022. But they could resume raising rates again in July.

While overall inflation has leveled, Fed officials tend to focus more on "core" prices, which exclude volatile food and energy costs and are thought to provide a clearer view of inflation. And U.S. core prices remained high in May, rising 0.4% from the previous month.

While the Twin Cities' inflation rate is already below the Fed's 2% target, economists noted Fed policymakers set monetary policy based on the national picture. So while the region might not need as much cooling off as the rest of the country, it still will have to grapple with higher rates if the Fed decides to do more.

"The Twin Cities and Minnesota economies wouldn't need quite as much slowing down as the rest of the country does, but they're going to get it anyway," said Johnston.