Bright Lights, Big City, Bigger Prices - Where Inflation Hides

Tyler Durden's picture

Subdued headline inflation hides the inimitable rise of prices across the country; but ConvergEx's Nick Colas examines the pace of inflation in four large cities across the US – Boston, Chicago, New York and San Francisco.  All are home to multitudes of urban working professionals, share the same currency and have similar macro economies, though, Colas notes, the trend of price increases varies considerably (particularly with regards to NYC vs. the rest).  The cost of living is up in all four cities since 2008.  Incomes, too, are generally higher – although not in New York, likely a result of the Big Apple’s unique micro economy. Comparatively, New Yorkers have experienced the steepest price increases in transportation (higher cab and subway fares give this category a boost) and groceries, meanwhile rent, dinners out and cocktails continue to be more and more costly.  So what gives?  Rising inflation despite lower incomes?  The answer lies in the tug of war between less cash pay on Wall Street and a very active foreign investment market that is driving up real estate prices.

Via Nick Colas, ConvergEx,

Note from Nick:  New Yorkers often marvel at the low cost of living elsewhere in the country, thinking how “Easy” it would be to just hang it up and live a modest life somewhere in the heartland.  Escape fantasies aside, there is much to learn from comparing price trends across the U.S.  Beth has done such an analysis here, and what pops out is a fascinating study of how inflation works at the “Micro” levels of an economy.

My favorite cut of meat is the filet mignon at Sparks in Manhattan.  It’s $46.95 and well worth every penny.  Alfred’s in San Francisco offers an arguably similar dining experience (though missing is the “cool” factor that comes with eating at the location of an infamous Mafia murder) and quality piece of beef for just $37.  Chicago Chop House’s chateaubriand for two goes for $99, while the signature steak for two at Abe & Louie’s in Boston is only $88.

Varying prices for similar products in different cities is pretty common economic knowledge; it’s a reflection of the distinct micro economies that exist among cities even with congruent macro economies.  Our focus today, however, isn’t on price variations, but rather the difference in price trends.  We’ve chosen the four cities mentioned above – Boston, Chicago, New York and San Francisco – because they all represent tightly clustered urban populations of working professionals.  They are classic examples of what rural folks refer to as “the big city.” 

Below are our findings on price inflation in 6 categories that occupy considerable space in a typical urbanite’s budget – housing, transportation, groceries, dinners out, cocktails and entertainment.  All are courtesy of the Consumer Price Index (CPI), except “Entertainment” which we present in the form of Team Marketing Report’s Major League Baseball (MLB) Fan Cost Index, a.k.a. the average cost for a family of four to attend a baseball game.

Category #1 – Residential Real Estate.  Housing costs have increased more in New York and San Francisco than in Boston and Chicago.

  • Housing costs (which include utilities, furnishings and supplies according to the CPI) in Boston and Chicago are 2.0% and 2.6%, respectively, higher now than in their peak in 2008, having dipped lower from 2009-2011.  In New York and San Francisco, on the other hand, housing costs never fell below pre-recession levels and are currently a respective 8.2% and 9.4% higher than they were five years ago.
  • More recently, year-over-year increases in housing costs in New York (2.4%) and San Francisco (3.2%) trump those in Boston (1.6%) and Chicago (1.9%).  In Manhattan specifically, the average monthly rent for a 1-bedroom, doorman building apartment is $3,900 which is up more than 5% in the past year and more than $600 higher than the recession trough of $3,276 in 2010.  A walk-up studio goes for $2,406 a month, up 10% from last year and almost $500 more than the recession trough of $1,930 in 2010.  See MNS.com for further details, including rents by Manhattan neighborhood, in case you’re in the market for new digs.
  • As a side note, the CPI calculates the cost of housing to include utilities, furnishings and supplies, but the main component is called owners’ equivalent rent of primary residence (OER).  Housing units are not in the CPI market basket.  In its survey to determine OER, CPI questionnaire asks consumers who rent their residence simply how much they pay per month in rent, including garage and parking facilities.  For those who own their residence, they must estimate how much they think it would rent for monthly, unfurnished and without utilities.

Category #2 – Transportation.  The price of getting from one place to another is up sharply in all four cities.

  • Including public transportation, car rentals, airfare, car repair, etc., transportation costs nosedived in 2009 across the board only to show consistent increases in every year since.
  • Price increases since 2008 in New York (17.9%) and San Francisco (16.9%) are higher than in Boston (13.4%) and Chicago (12.4%), though in the past year transportation costs in each city climbed between 2.6% and 2.8%.   It’s worth mentioning that gasoline prices are lower year-over-year in all 4 cities, with NYC and Boston seeing about a 1% decline, while San Francisco and Chicago experiencing declines of more than 5%.

Category #3 – Food.  A trip to the supermarket is increasingly costing more in the east coast cities than in their two counterparts.

  • Groceries are getting pricier in New York (+15.2% over the past five years) and Boston (+13.0% since 2008) than in Chicago (+8.0%) and San Francisco (+6.1%). 
  • Currently through February, grocery shopping cost 1.7% more in Boston than in 2012, making it the city with the biggest year-on-year appreciation.

Category #4 – Eating out.  Surprisingly, restaurant meals are getting relatively cheaper in New York.

  • Meals outside of the home increased the least in NYC over the past 5 years, rising 12.3%, compared with 14% gains in Boston and San Francisco and a 16.2% rise in Chicago. 
  • As for the past year, the price of dinner in a Chicago restaurant jumped 4.0% on average, versus 3.7% in San Francisco and much lower increases in Boston (2.2%) and New York (1.6%).

Category #5 – Martinis and other adult beverages.

  • In the past year alone, the average price of an alcoholic beverage rose 2.9% in New York, versus just 1.0% in the other three cities. 
  • Over the past five years, the price of beer, wine and spirits rose 10.3% in the Big Apple, topped by an 11.9% increase in Boston.  Chicago and San Francisco experienced price increases of 7.2% each.

Category #6 – The national pastime.  And as for baseball, it’s more expensive to see the Red Sox than any other team in MLB, but inflation at Fenway is super low.

  • Team Marketing Report’s Fan Cost Index, our proxy for entertainment, compiles the price of four adult tickets, two small draft beers, four small soft drinks, four regular-size hot dogs, parking for one car, two game programs and two baseball caps.  The cost of all this run $377 in Boston, versus $324 to see the Yankees, $298 to catch a Cubs game, and $238 to watch the SF Giants. 
  • Over the past year however, the cost of attending a baseball game was unchanged to lower in Boston, Chicago and New York, but gained 6.0% in San Francisco.  In the past five years, the price to experience a Red Sox game increased just 5.1%, compared with 17.9% for a Yankees experience, 18.4% to see the Cubs, and 29.5% to watch the Giants.

All of the key ingredients in the cost of big city living are on the rise, but fortunately for Bostonians, Chicagoans and San Franciscans, incomes are increasing too.  As you might’ve expected, incomes dipped across the board in 2009 but rebounded by 2011.  As of last year, incomes in San Francisco County were 9.7% higher than before the financial crisis.  They were 4.1% higher in Cook County (home of most of Chicago) and 3.2% higher in Suffolk County (home of Boston).

For Manhattanites, though, it’s a different story.  Average annual pay in New York County was $98,287 last year, or 2.8% lower than in 2008 when the average worker received $101,084.  So why is the city experiencing rising inflation in light of lower incomes, especially when other big cities across the country don’t have the same disconnect?  Well, incomes are likely lower as a result of less cash pay on Wall Street.  In the aftermath of the Lehman collapse, bankers’ bonuses took a hit, and they were not only lower but a greater portion of bonus pay was in the form of deferred compensation.  Couple this with a strong foreign investment market that is driving up real estate prices in Manhattan, and you’ve got a tidy explanation for an otherwise curious anomaly.

To make some macro sense of all these data points, we end with three conclusions that highlight the dynamics of inflation in the real world.

  • First, real estate prices drag up the prices of other goods.  We’ve already covered the residential aspect, but arguably more important is commercial real estate.  And according to the Moody’s/RCA Commercial Property Price Indices (CPPI), commercial real estate prices have been on a steady uptrend since early 2010 and climbed 6.5% in the past year.  While the primary index has yet to reach its peak level from December 2007, it stands 32.3% higher than its trough in January 2010.  And as we’ve seen over the past 5 years, commercial real estate prices move in tandem with residential markets.
  • Second, inflation is all about perceptions, particularly at the local level.  Examining inflation on a micro basis is a useful construct that highlights how perceptions of future prices vary across the country. 
  • And last, the mechanics of inflation are far from uniform across the country.  Various factors drive inflation, and while the CPI measures price changes on a national level, inflation is just as much about local markets.  This implies that inflation is perhaps less of a threat to the nationwide economy since individual places have different micro economies and thus different levels of price appreciation.  A whole lot of things have to line up on a national level for there to be widespread inflation.

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Money Squid's picture

inflation hides in less quantity, less quality, less availability. Plastic rice anyone?

markmotive's picture

Have you bought bread lately?

The 'official' numbers are up over 12% over the past 5 years. I think the 'real' numbers are way higher.

http://www.planbeconomics.com/2013/05/chart-official-food-inflation-over...

Hangfire's picture

I can't find Hillbilly Bread anywhere these days, I aint buying unless it's Hillbilly!   

american eyedol's picture

talk about inflation nikkei is up 400 points tonight passing 140000 charts starting to look like hockey stick

fonzannoon's picture

The nikkei will lead us all to the money printing promised land. Rejoice all!

flacon's picture

Ben Bernanke walks into a pizza shop and orders one large pizza. The waiter asks him if he would like it sliced into 6 or 8 slices. He responds: "Eight please, I'm very hungry today."

edb5s's picture

The New Normal - where entire markets trade like penny stocks.

Troll Magnet's picture

The real estate in LA is spiraling out of control, too. A 2bd/ba townhome in my neck of the woods just listed for $1 million. There are 2bd/ba apartments for rent @ $5,500. It's a nice neighborhood but shit is getting outta control.

mrdenis's picture

don't like the bread but love the moonshine ...........

Dingleberry's picture

I heard Pampers decreased the amount of diapers they put in each box. Probably hedonically adjusted to handle bigger loads of shit?

tarsubil's picture

I was in the grocery store last night and this guy is trying to get his girlfriend to buy something from the frozen section. He said, "It's got a lot of stuff in it but it is cheap..." And I said while walking by, "That's why it is cheap." Both of them looked unhealthy. People are being fed shit and being told they are rich and happy.

mickeyman's picture

Already had some thanks

Dewey Cheatum Howe's picture

No shit sherlock, it is always more expensive in general in bigger cities hence the higher paying salaries to offset the costs. It is not a fair measure of inflation. A more fair and balanced is to look at it proportionally to average paycheck in each area measuring commonly bought items like milk and booze. Can I buy the same amount of beers based on prices on an average weekly paycheck or not in each representative area.

tarsubil's picture

So there is no inflation if wages go up too?

Dewey Cheatum Howe's picture

No if wages keep pace it is not. If relative purchasing power is the same in relation to different average wages in different regions it is not.

This the technical definition of inflation.

http://www.investopedia.com/terms/i/inflation.asp

Definition of 'Inflation'

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.

nmewn's picture

"My favorite cut of meat is the filet mignon at Sparks in Manhattan. It’s $46.95 and well worth every penny. Alfred’s in San Francisco offers an arguably similar dining experience (though missing is the “cool” factor that comes with eating at the location of an infamous Mafia murder) and quality piece of beef for just $37. Chicago Chop House’s chateaubriand for two goes for $99, while the signature steak for two at Abe & Louie’s in Boston is only $88."

ROTFL!!!

tenpanhandle's picture

The bottle of Mad Dog is extra.

nmewn's picture

I never hunt in Berluti shoes & Brioni suits...but I have tasted MD & Wild Irish Rose...lol.

mophead's picture

Filet mignon is so overrated. I'll take a t-bone steak over that liver tasting overpriced crap any day.

francis_sawyer's picture

A fucking T-Bone consists of 2 sides [a NY strip side & a filet mignon side ~ separated by the bone ~ not to mention the fact that they're very hard to cook properly because both cuts of meat cook differently because of the tenderness issue]... So I'm assuming that when you order your T-BONE... You cut away the Filet Mignon side & feed it to the dog & only eat the sirloin strip side [whilst paying the WHOLE price for the WHOLE STEAK]... Why not just order a NY strip?...

~~~

GENIUSES we have here on ZH people... This motherfucker wouldn't know a fucking porterhouse from a can of ALPO... [I bet his dog would though]...

Bearwagon's picture

I'd be willing to settle for entrecôte.

francis_sawyer's picture

Let's cut the fucking horseshit shall we?

~~~

A 'filet mignon' is still, IMO, one of the best VALUE cuts of beef there is [because you're getting the best 'beef to fat' ratio of any other meat & it still is tender because it is unexercised muscle sinew]... Others may argue that the 'kobe style' marbled cuts [like most ribeyes] are the best, but that's because "fat = flavor" [which is also why most filet mignons have to be cooked in butter to ADD flavor which isn't otherwise there]...

I can still go anywhere [try any Asian market anywhere] & buy a beef loin [filet mignon] for anywhere between $6.99 a pound & $9.99 a pound [usually the latter, but sometimes you get lucky]...

Depending on the steakhouse [& how they serve their medallions], a filet mignon is going to come in somewhere between 200-300 grams [or, 1/2 to 3/4 pound]... So ~ based on the above 'supermarket' prices, a single medallion would cost you between $5 an $7 bucks if you made it yourself at home... [less than 2 quarter pounders with cheese]...

So ~ $44 bucks is fucking ridiculous... & I don't want to hear any shit about these restaurants being so 'picky' about the cuts of beef they buy... Some of it is true, but most of it is just 'marketing' as an excuse to jack up the price...The next thing is to COOK ONE OF THESE THINGS PROPERLY [which isn't hard to learn & doesn't require any more special equipment than a cast iron skillet or griddle with ridges]... On the flipside, a total JACKASS could take a lovely cut of meat & turn it into a monstrosity [think the 'CHEF' scene in Apocalypse Now when he talked about Prime Rib]...

These people paying $44 [a 900% markup], are, most likely, not even using their own money to pay... They're probably taking 'clients' out on an expense account... [Which means that they probably work for some Wall St./K Street revolving door operation, that's technically bankrupt [save for the joobuck money printers]... & so guess what?... YOUR TAXDOLLARS are subsidizing their 900% mark-up...

Enjoy your fucking mouse flavored catfood bitchez!... Either that, or take all your money out of the banks... Buy a freezer... Go meat shopping... Buy a $20 iron skillet... Eat some filet mignons yourself and tell these motherfuckers to fuck off...

Bearwagon's picture

You are right, 'filet mignon' is one of the best value cuts, and there isn't that much tenderloin on a steer. But I wanted to add a suggestion regarding the flavor: It can be wrapped in a slice of (premium) bacon.

francis_sawyer's picture

Agreed [with the bacon part]... But it comes down to the same thing... FAT=FLAVOR... 'Purists' will say not to mix bacon [pork fat] with beef, but I say 'fuck them'... You oughta eat what you think tastes good... The butter, in the end, is a beef product which marries things together... Which is why butter, in this case, is a better choice than vegetable or even olive oil... Olive oil would actually be a tragedy here because of the cooking temperatures... You can put olive oil on it afterwards [if you wish], but it should be fresh & uncooked... Butter is the best choice... Fuck ~ people have known about this for thousands of years... It's only the fucking geniuses in the last 20 years that think they know better... You know ~ the ones who buy beef tenderlions with bitcoins, drive it home in their Chevy Volts, & then toss it in a pot to boil... RETARDS...

Overfed's picture

That's how I like it, plus a dash of worcestershire, garlic, pepper, and salt. Then cook it on a nice, hot grill.

CheapBastard's picture

"My favorite cut of meat is the horse matballs at IKEA followed by the Almond cakes"

kito's picture

hey nick, are you talking about manhattan or all of nyc??? big difference......you dont see these big increases in the bronx, eastern queens, eastern brooklyn, etc...........plenty of places in those areas where pizza is still a buck............

so i assume you are talking about manhattan, where prices have always been much higher than the outlying areas...suck it up nick or move.........thats big city living......

fonzannoon's picture

No Kito you are way off. We meaure inflation by a filet at sparks because who does not go to sparks twice a week?

This guy is out of his effen mind.

Troll Magnet's picture

a slice of pizza for a buck in new york? you gotta be shittin' us, kito. where???

fonzannoon's picture

By me pizza is $2 a slice. The slices keep getting smaller.

kito's picture

is it true that in lawng ayeland that your property taxes keep going up and your property line is pushed back a few inches every year???????

fonzannoon's picture

My property taxes keep going up, that's for damn sure. Not sure where you are getting that about the property line. I live in Nassau County, which is hands down the most corrupt country in this country. So it's certainly possible.

kito's picture

i jest.....i figured since they are raising the price of your pizza and making the slices smaller, they might be doing the same with your property lot....................

fonzannoon's picture

It's a pretty cool experiment. I bet they go for it.

francis_sawyer's picture

A pizza place can cut corners without simply relying on the 'SIZE' element... Ways to do it include:

~~~

- Adding more dough [to the weight] & cutting down on the cheese [you'd probably notice slight changes to the crust volume]

- Adding more volume of the lower cost heavier toppings [the pizzas would taste a little 'saucier']

- switching to a lower cost cheese [you may or may not notice any difference at all]

- or other measures like how they operate their ovens [ones who heat with 'electric ovens' are more exposed than ones with wood fired ovens]

- staff

~~~

There are a million things that can be made more efficient in the process... The LAST of which, is usually the circumference of a pizza [mostly because the pizza peels, baking apparatus, & even number of grams in a ball of untossed dough to be pressed out to achieve a uniform size ~ are fairly proprietary & standardized with each operation]...

cynicalskeptic's picture

Taxes here in Westchester have more than tripled in less than 20 years - more than the mortgage for many.  That NYS 'property tax cap' is a total fraud.  Somehow the 'formula' used always allows a larger increase than the quoted percentage AND local school districts and municipalities are playing games - like hitting 'reserves' (can't keep doing THAt forever) to stay under the 'limit.'

Meanwhile the roads are crap - pothole patching is totally inadequate and when the HAVE to they only repave a few blocks at a time instead of a whole street that needs it.  Meanwhile at least half the local cops and firemen (no real stress in these places) that retire end up collecting full disability.  Seriously, one guy who spent his whole career cooping tried to clai he ended up diabetic from his schedule. At least they turned him down - though the moron is now working for the school system (and is widely hated).  Funny how HE - the 'head of security' was out 'sick' the day two kids were arrested for mouthing off (that's all these two were capable of) about how they were going to 'get' him.

All our esteemed 'public servants' are in for a world of hurt when they find out the nice fat pensions they thought they were getting aren't worth a thing (as if the rest of us get defined benefot pensions anymore...). 

Oh - as far as property lines go - next village makes YOU replace damaged sidewalks now - even though the Village 'owns' them.  Ands lots of luck getting them to deal with sick trees ready to fall over or drop a limb on your car (BUT God help you if YOU pay a tree company to do the work - most won't because the Village claims the property edge trees).

mrdenis's picture

I always ask for my pie to be cut in quarters ...I could never eat eight slices 

kito's picture

lots of places....even manhattan....hells kitchen has a few..........

 

http://slice.seriouseats.com/archives/2010/03/where-to-get-99-cent-slices-2-bros-dollar-pizza-in-nyc-with-map.html

 

that was 2010..sorry...here is an updated dollar pizza list from yelp...

http://www.yelp.com/search?find_desc=1+dollar+pizza&find_loc=New+York%2C+NY

dark pools of soros's picture

8th & 38th got a joint were you get $1 slice

kito's picture

i can get half the menu at Sugar Cane caribbean food restaurant in flatbush for 40 bucks.........

 

Overfed's picture

I don't see how anyone could live in that fascist hellhole. Even if they do have great pizza on the cheap.

ParkAveFlasher's picture

Inflation in NYC is driven by a max 3% increase in rent for all non-rent controlled units that do not have specific increases written into the lease, which is most of them.  The writer is overthinking..  Porterhouse consumption does not drive the beef market for most people much less broader prices.  The driver of all prices in densely urban space is land.  NYC is no different.

ParkAveFlasher's picture

[browser not editing].

Assuming half the average person's salary or income goes into housing, this locks in 50% of all transactions with a 3% rate of increase yoy.  It's a gigantic inflation plug.  The high end market price charts read like Annagaddadavita on the graphic eq led.  Inflation is plugged around 3% in NYC, that's a fact.

Dr. Kenneth Noisewater's picture

Incidentally, Dallas, Houston, San Antonio and Austin are all bigger than San Frantastic.  And I'm betting Houston will be bigger than Chicago in the fairly near future, barring natural disaster on the Gulf.

Fox-Scully's picture

For NY City, it is simple math.  A 32 oz. drink is a lot less expensive than four 8 oz drinks.  Therefore thank Bloomberg for the greater inflation in New York.

The Master's picture

And this is why NYC is ground zero for the Nanny state experiment. Shit will hit the fan here first. TPTB via Bloomberg knows this and is preparing accordingly.

dark pools of soros's picture

Nobody really seems to care on the street.. If you're not busy in NYC you'll get spit out.. The slower cities that adapt some of NYC lunacy will feel far more like nanny states

fonzannoon's picture

"My favorite cut of meat is the filet mignon at Sparks in Manhattan. It’s $46.95 and well worth every penny"

The banks all over wall street are shipping jobs down to Jacksonville by the thousands. Most of those jobs are mid level, so while the mid level trophy wives are too stupid to realize they are living the escape fantasy, New york will be left with those making a milion dollars or more. They will have no problem paying $50 for a steak. The question is when they leave sparks and fart in the face of a homeless person, how do we measure the price of a sparks filet fart in the face?