Boston, “The Future Of Inflation”, And Housing

We come across this statement by the chairman of the Boston Federal Reserve (boldface mine):

At a Friday breakfast meeting of the Greater Boston Chamber of Commerce, Boston’s Federal Reserve president Eric Rosengren laid out some of the unique challenges that come from being in the economic vanguard. Like the possibility that our super-low unemployment rate may also stoke super-high inflation.

Nationwide, the unemployment rate is 4.1 percent and projected to drop to 3.8 percent by year’s end. But at the Westin Boston Waterfront hotel Friday, Rosengren was quick to emphasize that “Massachusetts, and certainly northern New England, are already below that number,” with the state’s unemployment rate now at 3.5 percent.

But that’s not the only figure placing Massachusetts in the vanguard. Greater Boston also has one of the highest inflation rates in the country. As of March, inflation in Boston was running at 3.6 percent, well above the 2.4 percent national rate. Even if you leave out volatile categories like food, energy, or housing, inflation in Greater Boston still looks relatively high.

The analysis is the article is piss poor unfortunately. When you look at the actual report (#IMadeAnActually), what we see is that housing is driving this spike, along with energy prices:

Energy prices were up 16.8 percent from a year ago, largely attributable to gasoline prices, up 15.1 percent and to a lesser extent, utility piped gas prices up 30.1 percent. Higher prices for electricity also contributed to the overall increase, up 10.9 percent.

Over the year, the index for all items less food and energy rose 2.6 percent, with higher shelter costs being the main driver of the increase, up 4.8 percent. Within shelter, higher costs for owners’ equivalent rent of residences, up 4.0 percent, led the increase. To a lesser extent, higher prices for education and communication, up 4.2 percent, also contributed to the increase.

Food prices also played a role. There really isn’t much to be done about food and energy prices (the latter could be affected by conservation measures). On the housing front, the problem is the same as it has been for Greater Boston: inadequate supply meeting the high end of income inequality, resulting in a bidding up of housing costs, along with a dash of previously-affordable areas becoming gentrified (even if it’s not called that when it’s ‘white-on-white’ gentrification).

In other words, if we’re truly worried about inflation, one response, among several would be to increase taxes at the higher ends–and not just the one percent (or 0.1 percent). Coupled with that, we need to build more housing, especially in the suburban-like areas of Greater Boston that have access to mass transit. Cranking up interest rates is a poor substitute for both of these policies.

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