Twin Cities prices leap 7.4%, not as high as rest of U.S.

Inflation in Twin Cities, like the nation as a whole, remains uncomfortably hot.

New data released Thursday showed that the year-over-year prices consumers paid for services and goods in September climbed 7.4% in the Minneapolis-St. Paul region. They rose 8.2% in the U.S. as a whole.

"It doesn't necessarily mean things are cheaper in Minneapolis," said Paul LaPorte, an economist with the U.S. Bureau of Labor Statistics. "It just means that prices may not have moved as fast."

In fact, prices for groceries, restaurants and gas rose faster over the past year in the Twin Cities compared with the U.S., he said.

Still, it's the first time since January that inflation for the Twin Cities, as measured by the consumer price index, has dipped below 8%. The metro area rate, which comes out every other month, reached a high of 8.7% in May.

The U.S. rate, which comes out monthly, hit a recent year-over-year high of 9.1% in June and has been slowly coming down since then.

Categories where Twin Cities prices did not rise as quickly as the U.S. over the past year include shelter, apparel, new and used motor vehicles, and recreation, LaPorte said.

Year-over-year inflation has been cooling off a bit as gas prices have fallen in recent months. The price for a gallon of regular unleaded in Minnesota peaked at a record-high of $4.76 in mid-June, according to AAA.

But the price is slowly creeping back up and is now at $3.78 a gallon. It is expected to continue to rise because major oil exporting countries recently decided to cut production.

Akshay Rao, a marketing professor at the University of Minnesota, said food and energy price increases may have a delayed impact on prices in other sectors even after the prices for those particular categories fall.

"Gasoline has an impact on everything in our economy — as does food," he said. "Everybody eats."

Rao said the areas that saw sizable price increases in September, such as rent and health care, are in areas where workers might have gotten raises to account for the rising costs of putting food on the table and commuting to work. And companies, which may have raised prices recently because of higher transportation costs, are not likely to drop the prices at the same rate.

"They're going to hang onto that increased price as long as people pay for it," Rao said. "We know that prices go up faster than they come down."

When you strip out energy and food prices, which tend to be more volatile, so-called "core inflation" increased from August to September, said Marcus Bansah, an economics professor at St. Olaf College.

"That shows that inflation is more persistent or entrenched in the U.S. economy," he said. "That is bad news for the economy because it means the Fed will be more concerned that inflation is more widespread."

The report will likely strengthen the Federal Reserve's resolve to continue aggressively raising interest rates to try to rein in inflation by cooling off demand. The central bank has already hiked rates five times this year, raising short-term interest rates by 3 percentage points since March.

It's expected to increase rates two more times this year, including a three-quarters of a percentage point increase projected for next month.

However, some economists have become concerned that the Fed is slamming on the brakes too fast, raising the chances of throwing the economy into a recession. They note that inflation in the past year has mostly stemmed from supply chain issues — something that the Fed can't control with interest rates.

Supply chains in some sectors are improving, easing some price pressures, Minneapolis Fed President Neel Kashkari said at an event earlier this week. But he said he doesn't yet see a reason for the Fed to slow down on its planned course.

"We have not yet seen much evidence the underlying inflation — the services inflation, the wage inflation, the labor market — that that is yet softening," he said.

Kashkari, who will have a vote on the interest rate-setting committee next year, said he expects the Fed will raise rates to the range of 4% to 4.5%, and then hold for awhile as the effects work through the economy.

"Then we can assess: Do we need to go higher from there or can we begin to back off if we think inflation is heading well back down to 2%?" he said, referring to the Fed's inflation target.