Chicago consumer prices lag

Now that we have the highest sales tax rates of any substantial community in the nation, it stands to reason that consumer prices, which include taxes, would be increasing faster here than nationally, right?

Not only are we not seeing this, but prices in Chicago have lagged most other areas over the 1998-2008 period.  I’ve put together data from the U S Bureau of Labor Statistics here. Comparing the annual averages, we see that Chicago prices gained less than 29% while the national average increased more than 32%.  Our costs for natural gas and gasoline increase more than the average, but most other costs grew about the same or less.   Apparel actually dropped nearly 25%, compared to about 11% nationally.  Groceries and electricity also grew much less than most other places.

The last three columns of the table show the weights, which are essentially the percentage of consumer expenditures for each item.  Housing costs account for more than 42%, both nationally and locally.  You might already know that the cost of purchasing a home is not directly reflected in the CPI.  Rather, the concept of “owner equivalent rent,” how much it might cost you to rent a house like the one you own and occupy, is used instead.

I have shown pretty nearly the most detailed breakout available for the Chicago region; however much more detail is available at the national level. The components of each category, with the detailed (national) weights, are here.

I have limited this analysis to annual averages in order to avoid worrying about seasonal adjustment.  However, one could compare the latest (April ’09) report to year-ago data, at the national and regional level, and see that prices are falling more quickly here (down 2.2% in a year)  than  nationally (down 0.7%).

Why would this be?  Of course Chicago isn’t the only place to have raised sales taxes, and other kinds of taxes on productive activity will also find their way to consumer prices.  But the specifics remain to be analyzed.

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