As the nation fretted over the latest consumer price report showing an unwanted uptick for March, Denver-area economists were dealing with the complete opposite: annual inflation dropped to 2.8%.
Denver’s rate, which has been higher than the U.S. for the past 12 months, is now lower than the nation’s rising 3.5% for March. Credit Colorado’s lower gas prices, down 20.6% from a year ago, according to the U.S. Bureau of Labor and local economists.
“That is great news, but the relief might be temporary as it will likely bounce back when the summer tourist season starts,” said Gary Horvath, an economist at Cber.co in Broomfield. “The state legislature is feeling the pain. They raised their budget to about $42 billion and will most likely have to waitlist a number of projects with hefty fiscal notes.”
Horvath and others pointed to the mix of higher and lower prices in the Denver area for March. The cost of eating out jumped up 7.6% but the cost of groceries went down 1.3%, with meat prices falling 3.3%. While gas prices fell, electricity costs rose 4.9%. Clothing prices were also down 4.5%, but tuition, school fees and child care was up 4.5%. Housing prices were higher for both renters and homeowners, up 4.2% and 6.3%, respectively.
The Denver metro area has recorded higher inflation than the nation for 11 of the past 14 years and tied one year, according to research from the University of Colorado’s business school Business.
“The last time Denver posted slower growth was from May through November 2022,” said Brian Lewandowski, executive director CU Leeds Business School’s Business Research Division. “Thus, a slower rate of growth isn’t unheard of for our region, even in recent years, but the annual rates of growth still tend to come out higher.”
At 2.8%, Denver also had one of the nation’s lowest inflation rates and ranked fifth lowest in WalletHub’s “Cities with Biggest Inflation Problems,” which considers annual inflation plus the change in prices in the past two months. Denver prices have increased 0.7% since January, compared with the U.S.’s increase of 0.3%. Other cities like Miami and Dallas saw greater 2-month increases of 1.4% and 0.9%, respectively.
“This indicates ongoing economic adjustments within (Denver’s) economy,” said Cassandra Happe, an analyst for WalletHub, a personal finance site. “Other cities face different challenges such as rising housing or healthcare costs, which offset any benefits from reduced fuel expenses. The impact of factors like labor shortages and supply chain disruptions on prices vary across regions, further driving the discrepancies in inflation rates among cities.”
Higher inflation nationwide cast doubt on whether the Federal Reserve will cut interest rates in June, or even this year. Those higher interest rates have kept prospective house hunters on the sidelines because of higher monthly mortgages. But higher interest rates also slowed down the double-digit growth in new home sale prices in the state. In March, the number of new houses for sale in the Denver area still dropped 3.8% from a year ago, with median sales prices rising just 4.1% to $624,723, according to the latest data from the Colorado Association of Realtors.
“People were hopeful that inflation would drop straight to the Fed’s target rate. A more realistic view is that it would be volatile and that is what is happening now,” Horvath said.
Prices are still increasing
Of course, even at 2.8%, Denver-area prices are still rising — and rising faster than the Fed’s target rate of 2%. And consumers, especially those in Colorado, have experienced very high inflation for the past three years. Based on the consumer price index for Denver, prices are up 20.5% from March 2020 to March 2024.
According to Common Sense Institute, a conservative economic think tank in Greenwood Village, the average Colorado household is now spending $1,230 more per month than they were before the pandemic, and that’s solely blamed on inflation.
But household incomes have also increased. According to the U.S. Census Bureau, which has data through January 2022, the median household income in Denver between January 2020 to 2022 increased 16.3% to $87,619. More recent data wasn’t available.
Denverites spend more per month on housing than consumers in the rest of the nation, Cole Anderson, a CSI research analyst pointed out. According to the “basket of goods” that consumers divide their spending on each month, about 49.1% goes to housing in Denver. Elsewhere, it’s 45%.
“This means that impacts to the cost of housing has an outsized impact in Denver as compared to the nation as a whole,” Anderson said in an email, adding that Denver’s housing prices fell 0.03% while the nation’s increased by 0.8%.
But consumers often change their shopping habits when prices rise. They may buy less meat, which has gone up 23.9% in the past four years. They might put off buying a new house because of the higher prices and interest rates. And even as inflation may be slowing, it’s the multiple years of price increases that have folks remembering when the price of eggs spiked, or when paying $4 or more for a gallon of gas was unavoidable not too long ago.
Colorado gasoline prices, according to AAA, averaged $3.07 for a regular gallon of gas on Wednesday. That’s down about 10% in a year.
But it’s hard to think about inflation from just the past year, Horvath said. “Many people are still feeling the accumulated effect of the inflation in 2021, 2022, and 2023.”