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California cities lead the U.S. in inflation. Housing costs are a big reason why

Andrew Khouri, Los Angeles Times on

Published in Business News

LOS ANGELES -- Nationally, consumer prices are barely moving, with inflation clocking in at just 1.8% for May. But if you live in a major urban area of California, you've noticed a much bigger hit.

Among the chief culprits? Housing costs.

The U.S. Bureau of Labor Statistics reported Wednesday that a handful of California metropolitan areas saw the greatest jump in the consumer price index in May. San Diego County saw the largest increase, with inflation rising 3.8% from a year earlier. That was followed by Los Angeles and Orange counties, where consumer prices rose 3.1%.

In the Inland Empire counties of Riverside and San Bernardino, the inflation index climbed 2.9%. The San Francisco Bay Area, where the latest data is from April, saw inflation jump 4%.

To some extent, the latest reports drive home the state's housing affordability crisis.

"Housing has a huge weight in the index," said Lynn Reaser, chief economist of the Fermanian Business and Economic Institute at Point Loma Nazarene University in San Diego. "The problem is we are not building houses rapidly enough to accommodate the increase in demand."

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That demand is coming from a growing economy. And Pepperdine University professor Dave Smith said the fact California cities dominate the national inflation measure is a reflection that "economic activity is robust in these given areas and it's putting upward pressure on prices."

Mandated minimum-wage increases and a tight labor market are forcing employers to pay higher wages too, and they're passing at least some of that along to consumers, said Christopher Thornberg, founding partner of Beacon Economics.

Data from May aren't yet available, but in April average hourly earnings in Los Angeles and Orange counties rose 7% from a year earlier, to $31.60. In the Inland Empire, which has seen a boom in logistics and warehouse employment, wages rose 6.2%. In San Diego County, wages were essentially flat, but economists said that may be a statistical anomaly.

Other consumer prices rose as well. In Los Angeles and Orange counties, energy costs, largely reflecting gasoline, jumped 5.9% in May. Household furnishings and operations, including landscape services and furniture, rose 5.7%. Food prices rose 2.9%.

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