Denver had the second highest annual inflation rate in the U.S. last month

Inflation is slowing and economists are hopeful rates will decline further in 2024. Plus: Blame higher energy and housing costs, Colorado job growth, startups set a record and more!

By Tamara Chuang , The Colorado Sun

Prices continue to climb in the U.S., but few regions saw inflation grow faster than in Denver, which posted an annual inflation rate of 4.7% in July, according to the Consumer Price Index.?

The Denver metro had the second highest rate next to Tampa, Florida, which was at 5.9%. The U.S., by comparison, was 3.2%, the same as New York’s. Los Angeles landed at 2.7% from a year ago, Hawaii at 2.1%, and Washington, D.C.’s hit 1.8%.?

At least Denver’s rate is dropping, said Richard Wobbekind, a senior economist and faculty director of the Business Research Division at the University of Colorado. It’s fallen from 5.1% in May and 5.7% in March.

“The trend is definitely in the right direction,” Wobbekind said Thursday during a news conference. “Hopefully we are going to see some continued trend downward in some of the core inflation areas.”

With the national inflation rate still more than a point above the 2% desired by the Federal Reserve, interest rates are likely to remain high. And that’ll continue to challenge industries that are sensitive to interest rate changes, like construction, housing and the financial sector.?

“Getting that additional (percentage point) is going to be a tough road and that’s going to keep these interest rates elevated for a longer period of time. I think the higher interest rate environment is here to stay, at least for the foreseeable future,” Wobbekind said. “We don’t see the inflation rate coming down under that 3% significantly until next year.”

Not all inflation is created equal

In Colorado, blame July’s inflation on higher energy and housing costs. Household energy services, which includes electricity and natural gas, hit particularly hard. Those costs grew 15.4% in a year, even as the same category nationwide fell 1.1% due to?a 13.7% drop in the cost of natural gas.?

The cost of shelter continues to be an issue in Denver, too. While housing costs rose less than energy, July inflation was at 10.4% for renters and 9.5% for owners, as part of the Bureau of Labor Statistics calculation called the “owners’ equivalent of rent.” (The U.S. shelter inflation rate was 7.7% in July.)?

In a typical year, the change in owners’ equivalent in rent is usually around 1%, said Julie Percival, a regional economist at the Bureau of Labor Statistics who tracks the Mountain Plains region.

And when shelter makes up 30% of what consumers spend as part of CPI, any increase can eat heavily into household budgets and have more impact than, for example, a gallon of gas increasing.?

There may be a silver lining for renters here, said Bill Craighead, the new program director for the University of Colorado Colorado Springs Economic Forum. Rent inflation is playing catchup from the incredible increases landlords levied on tenants in the past year.

“Since leases typically renew every 12 months, when there is an increase in rents, it only gradually affects the average rent paid,” Craighead said in an email. “This means that rent changes drive a lot of the inflation calculation but they do so with a lag. That is, we’re seeing the effects of rent increases in 2022 still affecting the data now.”

According to rent-tracking site ApartmentList, rents in Colorado Springs are down 3.9%, compared with a year ago.?Denver’s are down 1.1% while the state’s is essentially flat, dropping 0.2%. Some of the double-digit rent increases were landlords catching up because they couldn’t raise rents in the first year of the pandemic.

Knowing the cycle of rents and how the BLS measures the cost of housing for homeowners and renters, Craighead feels the worst of inflation is behind us because “that leveling off in rents will start to pull inflation down over time,” he added. “That’s one reason I’m pretty optimistic inflation will keep coming down.”

? Gas prices, by the way, fell almost 20%?in July from a year ago, which contributed to Colorado’s inflation slowing down. As of Friday, however, a gallon of gas in Colorado was?up an average of 18 cents?in the past month, to $3.97, according to AAA’s Gas Tracker.

Comparing Denver: Food, eating out and recreating?

Few items in the average Denverite’s budget saw a decline in costs, but there were a handful: Meat and eggs, down 1.3%; clothing, down 0.9%; used cars and trucks, down 6.2%; and gasoline for one’s car, down 18.3%. Most of those also fell nationwide.

But food prices continue to rise in Denver and the U.S. Eating at home cost 4.2% more than a year ago. But eating out cost even more, up 7.8%.?

It’s probably not a surprise to anyone that restaurant menu prices have gone up. Restaurants, like many businesses in the service sector, faced the double whammy of a labor shortage and rising wages in the past two years. While such trends benefit workers, that obviously impacts a restaurant’s bottomline and translates into higher menu prices.?

According to the National Restaurant Association, menu prices are up 7.1% nationwide in a year as of July, with the?South leading the increase at 7.4%. Denver’s rate, of course, was higher, at 7.8%.?

But other metro areas saw even greater inflation in menu prices, as well as other expenses measured by CPI. Here are a few more categories we compared from the latest CPI data:

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Prices continue to rise in Denver and Colorado but not as fast as they were earlier this year or last year. Some folks have even received a nice raise to offset inflation. How about you? Take the?What’s Working reader poll?and help us get better informed about our community.

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What’s Working?is a Colorado Sun column about surviving in today’s economy. Email?[email protected]?with stories, tips or questions. Read the?archive, ask a question at?cosun.co/heyww?and don’t miss the next one by signing up at?coloradosun.com/getww.?