Inflation hit Wenatchee Valley harder than most over last four years
WENATCHEE – Data in a Dec. 16 Bloomberg.com article suggested that Wenatchee saw its cost of living rise up the ranks faster than any other American metro area over the past decade. But a closer look at the numbers shows less jarring results, though still above the national average.
Bloomberg’s story tracked price rankings between metropolitan statistical areas from 2010-21. The Wenatchee Metropolitan Statistical Area moved up from 194th in 2010 to 36th most expensive in 2021.
The 2021 rankings relied on a report from the U.S. Bureau of Economic Analysis regarding Regional Price Parity (RPP) numbers for last year. These figures are calculations that measure the differences in price levels across different geographic regions in one single year.
Several problems, however, present themselves when the RPP is analyzed this way, said Eric Figueroa, BEA economist who helped publish the RPP data.
“The real story in looking at the RPP as it’s intended to be used is not as volatile as the rankings suggest,” Figueroa said.
The Wenatchee area saw a high rate of inflation over the last four years, but this change is not accurately reflected in a change in overall rankings of RPP.
Regional Price Parities explained
The Regional Price Parity is represented as a percentage and works in concert with the overall national price. The national average is set at 100. If the RPP of one area is, for example, 120 then average price levels in that area are 20% higher than the national average.
The Wenatchee Metropolitan Statistical Area, comprised of Chelan and Douglas counties, had a 103.1 RPP for “all items.” A metropolitan statistical area (MSA) is a census-designated area of one or more counties equaling a population of at least 100,000. Washington has 13 MSAs.
Wenatchee’s RPP of 103.1 means that, on average, the price of goods and other items were 3.1% more than the national average in 2021. Based on this value, Wenatchee ranked 36th most expensive among 386 metro areas in the country last year.
In comparison, the Seattle-Tacoma-Bellevue MSA had an RPP of 114.6, ranking fifth highest in the nation and 14.6% higher than the national average.
The “all items” category includes price quotes for “a wide array of items from the (Consumer Price Index from the U.S. Bureau of Labor Statistics) covering apparel, education, food, housing, medical, recreation, transportation, and other goods and services” along with data on housing rents and utilities obtained from the American Community Survey, according to a BEA news release.
The bureau splits its analysis into several sub-categories like housing, utilities and other goods.
The Wenatchee MSA’s housing RPP is 110.27, which means that, on average, rent in the region was about 10% more expensive in 2021 than the national average.
The problem with RPPs over the years
Regional Price Parities are only used to compare one geographical location, a state or MSA to another at one point in time. As time progresses, the national average changes and “a lot can be happening and it’s hard to disentangle,” Figueroa said.
If one region’s prices stay the same and every other area’s prices go down, that would mean a change in the ranking, for example, without reflecting any explicit change in prices.
The Consumer Price Index (CPI) does the opposite of an RPP, tracking price changes in one geographical area over time but not across different regions, Figueroa said.
“The RPPs cannot be compared across years to measure price change over time,” he said in an email. “For that, users should use the implicit regional price deflators or the CPI.”
The methodology used to determine the RPP also changed in 2021 and has been applied since 2017, “reducing comparability” to years prior 2017, as well as potentially impacting overall rankings, according to Figueroa.
Looking at RPPs by rank, the Wenatchee MSA stayed between the 100-200 range from 2008 to 2016. However, the Wenatchee MSA’s ranking went from 151st in 2016 to 59th in 2017.
Figueroa said the BEA plans on revising past RPP data through 2008 sometime in the next year, possibly, which would then impact any of the Wenatchee MSA’s rankings prior to 2017.
Figueroa said that in the grand scheme of things, only looking at a change in rankings, an MSA moving from the middle third to the top third in RPP is not dramatic.
Another change to how RPP is calculated came in 2018 when the CPI used for the Wenatchee MSA was split into two regions: the Mountain and Pacific regions. The Wenatchee MSA is in the Pacific region which includes metropolitan areas in California like Santa Barbara which has relatively higher price levels, Figueroa said.
Los Angeles, San Francisco and Seattle are not included in the Pacific region and have their own price index. The CPI developed by the U.S. Bureau of Labor Statistics represents about 93% of the country’s total population.
Calculating regional inflation
The bureau does provide a way to calculate regional inflation over time at the MSA-level by using an Implicit Regional Price Deflator (IRPD).
One caveat in looking at the IRPD to measure regional inflation is that the data is not directly comparing changes in prices over time. The values are only indirect estimates. The CPI, on the other hand, is explicitly comparing prices over time.
And the Wenatchee MSA is a much smaller area that does not get as many observations like something like the state of Pennsylvania, Washington or a very large city like Seattle which gets a lot more attention, Figueroa said.
The Wenatchee MSA has seen close to 11% inflation 2017 to 2021, according to the change in the IRPD. Across all 386 MSA’s, the average change in IRPD – regional inflation – was about 8.3%. So the Wenatchee MSA has experienced more inflation than the average metropolitan area, around the top third of the pack.
In the last year, the Wenatchee MSA has seen 4.6% growth, which is close to the 4.5% national average across all MSA’s.
Figueroa explained that most of the time areas where prices are highest will stay highest.
“(And) those that remain lowest, stay lowest,” he said.