On the economy: Region marked by acute cost-of-living increases

This column continues our semi-annual review of the cost-of-living in Northern Colorado, comparing our cost-of-living with the United States and Denver.

Changes in the U.S. all-urban Consumer Price Index are compared

to the Denver-Boulder Consumer Price Index and then to a Northern Colorado Consumer Price Index extracted from the American Chamber of Commerce Researchers Association (ACCRA) quarterly survey of living costs in Fort Collins, Loveland and Greeley.

Finally, a Misery Index is calculated to indicate the sum of annual changes in the cost-of-living and the unemployment rate.

The National Association of Business Economists forecast panel believes that the national economy will grow 3.0 percent in 1999 and 2.3 percent in 2000, making a “soft landing” from the 3.9 percent growth seen in 1998.

Thus, unemployment is not expected to increase significantly. Inflation is expected to rise from 1.6 percent in 1998 to 2.0 percent in 1999 and 2.3 percent in 2000.

During 1998, the U.S. economy’s inflation rate decreased for the second consecutive year. Consumer prices increased only about half as rapidly as in 1996. An important question is how much of the decrease is due to temporarily depressed world prices for energy and agricultural products. Measured by the CPI, excluding food and energy, inflation in the United States last year was only slightly lower than in 1997 and 1996.

The Denver-Boulder inflation rate will increase from 2.4 percent in 1998 to 2.9 percent in 1999 and 3.1 percent in 2000. Wage pressures from tight labor markets will exert more influence on the inflation rate as commodity price declines moderate in 1999.

In Northern Colorado, the ACCRA cost-of-living index for the fourth quarter of 1998 was 104.1, 107.6, and 96.4 for Fort Collins, Greeley, and Loveland, respectively. By far the largest single component of this index, and the major source of differences, is the cost of housing.

The ACCRA cost-of-living survey is designed to reflect prices paid by a salaried mid-management executive, for example, partners in small CPA or law firms, tenured university professors, the managers of local grocery chain stores, and owners of prosperous small businesses. However, there is some question about the accurate application of this model in Northern Colorado. For example, in the fourth quarter 1998 ACCRA report, average housing prices were

$151,000, $181,000, and $139,000 for Fort Collins, Greeley and Loveland, respectively. Our search of recent sales of new houses in mid-management compatible developments yielded average prices of $208,000, $194,000, and $206,000 for Fort Collins, Greeley, and Loveland, respectively.

A nearby graph shows the comprehensive ACCRA Index for our three cities plus a Northern Colorado average. Many Greeley index numbers were interpolated because of, until recently, lack of continuous data. We can see that the ACCRA Index is consistently highest for Fort Collins but that recently reported Greeley costs are comparable. Loveland costs appear to be consistently understated, undoubtedly because of unrealistically low housing costs.

Another nearby graph shows the Consumer Price Index for the United States, Denver-Boulder and Northern Colorado. The Northern Colorado index is computed by comparing the ACCRA Index for each quarter to the U.S. CPI in that quarter. Because the ACCRA Index represents mid-management living costs, we expect it to be higher than the average costs of living represented in the U.S. and Denver indexes.

We can see that the U.S. CPI has increased steadily but that the Denver-Boulder CPI has been slowly catching up to it so that, by late 1998, the two were equal. However, the Northern Colorado CPI had climbed above the Denver CPI by late 1992 and above the U.S. CPI in early 1997.

The annual-percent-change graph shows the growth rate of the U.S. CPI declining to 1.4 percent in March 1999, the Denver rate to 2.6 percent in December 1998 and the Northern Colorado rate to 3.2 percent, also in December 1998. These rates are for the 12 months ending in the month shown. The Northern Colorado rate fluctuates much more than the U.S. or Denver rates of change. As recently as early last year, annual growth in consumer costs of living were much higher in Northern Colorado than in the United States or the Denver-Boulder area.

Economists often combine the inflation rate, as measured by the growth rate of the CPI, and the unemployment rate into an index called the Misery Index, hypothesizing that high rates of growth in inflation and a high unemployment rate are very uncomfortable for consumers and low rates have just the opposite effect. A nearby Misery Index graph shows the results of this summation for the United States, Denver-Boulder and Northern Colorado.

We can see that consumers in the rest of the country are less uncomfortable than in Denver or Northern Colorado. The Misery Index is highest for Northern Colorado because a 3 percent plus unemployment rate is combined with a 3 percent plus increase in the cost of living. Again, we see that misery in Northern Colorado fluctuates much more than in larger geographical areas.

The cost of living is increasing more rapidly in Northern Colorado than in Colorado, Denver-Boulder or the rest of the country. This situation is not likely to change as long as our local economy continues to grow faster than the U.S. or Denver economies.