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Inland Empire experiencing higher inflation rate than Los Angeles and San Diego metro areas

Aerial view of warehouses in Redlands, California.
Anthony Victoria
The Frontline Observer
Aerial view of warehouses in Redlands, California.

Cal State San Bernardino Economics Professor Daniel MacDonald spoke with KVCR's Jonathan Linden for their monthly discussion on economics here in the Inland Empire.

Professor Daniel MacDonald is the chair of Cal State San Bernardino's Economics department and the author of the weeklyInland Empire Economic Updateemail newsletter. You can subscribe to his newsletter here. Below is a transcript of the conversation between Professor MacDonald and KVCR's Jonathan Linden.

Jonathan Linden: Each month I sit down with Cal State San Bernardino Economics Professor Daniel McDonald to discuss economics here in the Inland Empire. Daniel, just to get started here, can you tell us what your economic indicator is for the month of August?

Daniel MacDonald: Sure, Jonathan, and thanks again for having me. The indicator that I'd like to talk about this month is the inflation rate. So the inflation rate in the Inland Empire in July 2022, which is the most recent data that we have, was 9.2% year over year. So that means that between July 2021 and July 2022, the cost of living increased in the Inland Empire by 9.2%. And the reason for the higher inflation rate out here is primarily rents. So, for example, the inflation rate that we're experiencing, over 9% out here, is actually lower than the inflation rate that is currently being experienced in other major metro areas of Southern California, such as Los Angeles and San Diego. And the reason why we're experiencing higher inflation out here is because rental prices are going up so much year over year. So, for example, rents in the Inland Empire increased, according to the Bureau of Labor Statistics, by 8.4% over the last year. And that's compared to an increase of just 5% in Los Angeles. Now, we all know that Los Angeles has higher rents than the Inland Empire, but that's precisely the problem. Because people choose to come to the Inland Empire precisely because we have lower rents on average than Los Angeles does. But because of all that demand for apartments out here, that drives up our cost of living faster than in other areas. So it's kind of a funny situation that we're in. But it has meant that the region's residents, especially those who work and live out here, are experiencing a very rapid rise in the cost of living.

Chart comparing the inflation rate of the Inland Empire and Los Angeles metro areas between January 2020 to July 2022.
Daniel MacDonald
Cal State San Bernardino
Chart comparing the inflation rate of the Inland Empire and Los Angeles metro areas between January 2020 to July 2022.

Jonathan Linden: Are there national issues that are affecting our inflation, not just necessarily rent itself?

Daniel MacDonald: Yes, definitely, Jonathan, that's a great question. It's certainly true that prices are going up, and inflation is going up due to national reasons as well. You know, I think in the past, we've talked about two main reasons why prices do increase. The first is when the cost of workers goes up, right? So if employers have to pay more to employ their workers, then they might end up passing on some of those higher costs onto the consumer in the form of higher prices. But the second reason why prices go up is when the price of certain goods or services goes up, and that can happen either because of higher demand or lower supply. And so, when you're looking at the Inland Empire right now, the fact that the cost of workers is not necessarily driving the inflation that we're seeing, it must be this other issue, which is demand and supply. And so you look at, for example, gas prices… which is an excellent reason to think about inflation because gas prices are going up nationally… because of higher demand, but also lower supply. We've seen some relief recently, but (gas prices are) definitely driving the inflation we're seeing. Another reason that we're not necessarily at fault as a region... coming out of COVID-19, in the pandemic, as we emerged out of those conditions, we're seeing an increase in demand for apartments and people that are finally moving out of the home. And so, the higher demand for apartments is obviously driving up the prices as well. So there are some national factors, in addition to the local factors, that are causing the high inflation we're seeing.

Jonathan Linden: And is the war in Russia and Ukraine still affecting inflation here in the states?

Daniel MacDonald: Absolutely. So, the Federal Reserve comments all the time on what is happening abroad and how that's impacting their decision on whether to raise interest rates or not. So the Federal Reserve is our central bank, and they're in charge of basically managing inflation. And every time they meet, about every five or six weeks, they're talking about the ongoing geopolitical situation and how that's impacting their decisions on what to do about interest rates. So absolutely, international concerns are still on the table and still a matter of policy, and that policy is obviously related to the changes in inflation that we're seeing.

Jonathan Linden: Daniel, right now, do you think there is a recession looming here in the United States?

Daniel MacDonald: That's a good question, Jonathan. And it's somewhat related to what I was just speaking about with the interest rates. The Federal Reserve is definitely having more discussions about the possibility of a recession on the radar. Right now, I believe that it's still a little bit too early to call an official recession. People are talking about rising interest rates, the real estate market is currently taking a nosedive, and there are rumors of nervous employers across the United States. But at least in the region that we live in, the Inland Empire, job growth remains strong. Another indicator I like to look at is new claims for unemployment insurance, basically, the rate at which people are getting laid off and requesting unemployment benefits from the state Employment Development Department. Those numbers are also remaining level or, in some cases, even declining, perhaps slightly. I believe, just in the last week, the four-week average of new unemployment claims dropped by 2%. So that's an encouraging sign, and so it's still a little too early to say that we're officially in some kind of economic downturn, even though when you look at certain markets, like I said, real estate and when you look at what the Fed is doing… you might get the impression that we are in a downturn, but not yet... is what most economists are saying at this time.

Jonathan Linden: Well, Cal State San Bernardino Economics Professor Daniel McDonald, it's a pleasure speaking to you as always.

Daniel MacDonald: Thanks, Jonathan. It was a pleasure as well.

Jonathan Linden was a reporter at 91.9 KVCR in San Bernardino, California. He joined KVCR in July 2021 and served with the station till October 2022.
Professor Daniel MacDonald is the Chair of the Economics Department at California State University, San Bernardino. He earned his B.A. in Mathematics and Economics from Seton Hall University in 2007 and his Economics Ph.D. from the University of Massachusetts Amherst in 2013.