The war on inflation is already won in some parts of the U.S. Here’s how different cities stack up.

A hopeful sign in the nation’s grinding battle against inflation: Although the national rate of inflation across the U.S. remains roughly twice the Federal Reserve’s target of 2% per year, in some cities prices have already returned to normal. 

In May, for example, the annual rate of inflation in the Minneapolis metropolitan area fell to 1.8%, while in Honolulu it was 2%, according to Labor Department figures. On the other end of the spectrum, some Sun Belt cities are still suffering scorching price hikes. Annual inflation is 7.4% in Phoenix, 7.3% in Tampa and a whopping 9% in the Miami metro area.

The Fed has been raising interest rates for 15 months in hopes of quelling the hottest inflation since the 1980s. But the disparity in inflation increases across the country highlights one difficulty policymakers have in controlling price changes. After all, the U.S. doesn’t have one economy — it has thousands of regional economies, each with their own dynamics of supply and demand, wages, laws, government policy, and geographic differences that shape local economic conditions.

The primary factor driving these geographic variations in inflation? Housing. For instance, residents of the Midwest generally spend a smaller share of their budgets on keeping a roof over their head than people in the Northeast or West. With housing a huge contributor to recent inflation increases, inflation in the Midwest has been more muted this year, economists with the Federal Reserve Bank of Chicago said in a recent blog post.

By contrast, in recent years many Florida cities have experienced a population boom because of migration from other parts of the country, which has driven up rents and housing prices across the state.

While the pandemic exacerbated this trend — giving the “migration hotspots” of Atlanta, Miami, Tampa and Phoenix some of the hottest inflation in the nation — housing’s outsize role in price changes is a longstanding trend. Housing was the major reason inflation rates diverged regionally, in the two decades before the pandemic as well as in more recent years.

“We find that price changes in the housing sector are the main driver of regional differences in inflation in the two time periods we investigate: January 2002–January 2023 and January 2019–January 2023,” Chicago Fed economists wrote. “Although residents in different areas do have different purchasing patterns, we find that this plays only a small role in discrepancies in regional inflation.”

To be sure, the inflation rate doesn’t offer a picture of how pricey an area is — only how fast local prices are changing. That’s illustrated by the falling inflation rate in Honolulu. Its island location, where most consumer goods are flown in, has made Hawaii’s capital a famously expensive place to live. 

But thanks in part to a population exodus during the pandemic, prices in Honolulu have risen at a slower pace than elsewhere around the U.S. Annual inflation there peaked at 7.5% in March of last year, four months before the nation’s inflation rate hit 9.1%. Since then, falling population, combined with an increase in housing, helped shelter costs in the area grow only modestly — and, with prices for energy and used cars and trucks falling, overall inflation fell to a 2% rate last month.

Likewise, increased housing construction in Minnesota’s Twin Cities has helped ease price increases. The cost of shelter there is rising at just 4% a year, half the national rate, the Minneapolis Star Tribune noted. Meanwhile, shelter costs since last year have risen nearly 17% in Miami, 14% in Tampa and 10% in Dallas, according to the latest Labor Department figures.

For inflation-addled Americans, the good news is that prices nationwide are down sharply from their peak a year ago, and continuing to cool. A major sign the tide has turned: Workers pay is finally staying ahead of inflation, as real earnings in May turned positive for the first time in over two years.