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Texas Inflation Is Anything But Average

As the week wound to a close, the phone rang. It was Chris, one of my former Texas Lutheran University students, who graduated three years earlier.

After catching up on life, Chris had a question. He read that inflation, as measured by the Consumer Price Index, rose 0.3 percent in June, and the U.S. Labor Department reported the official measure of inflation had now moved into positive territory when compared to the previous year.

Chris said he understood the official CPI increase in year-over-year inflation was 1.8 percent, and the Personal Consumption Expenditures Index has averaged less than 2 percent annually since he graduated. Recognizing this, Chris struggled to figure out why his paychecks didn't seem to buy as much as they did a few years ago.

I encouraged Chris to recall one of his college lessons in which a 6-foot-tall man drowned trying to cross a river that "averaged" two feet deep. Chris chuckled as he remembered the lesson and added although year-over-year inflation may have been 1.8 percent, it did not mean this was an all-encompassing data point; there can be tremendous variability.

Indeed, averages can be very misleading. This is especially true when assessing an economy as broad as the U.S. with a population of 320 million people. It also exemplifies many of the stark contrasts when you have much of our nation still struggling to pull out of sluggish or non-existent growth and compare it to the Texas economy, which has been as hot as the July sun.

To further paint the picture, I shared with Chris data compiled from Econometric Studios and the Bureau of Labor Statistics. The data analyzed the inflation experienced by 350 Metropolitan Statistical Areas during the past six years. The median data point showed about an 11 percent increase in the cost of living during that time frame on a national basis. However, there was tremendous variability depending on where you lived.

Two of the top three increases in CPI came from California, with more than a 20 percent increase in the cost of life.

The bottom 25 MSA's experienced inflation ranging from 1.8 percent to 5.8 percent over the same six-year time frame. These bottom 25 CPI increases were dominated by cities in Florida, Arizona, Nevada, New York, Connecticut and New Jersey.

As we discussed this, Chris quickly realized many of those areas were hit hardest by the real estate bust following 2008. They simply had not recovered, and their local economies continued to struggle.

Chris pondered this and then asked how this differed from Texas.

As we ran through the data, we observed 24 MSA's represented by the Lone Star state. We both anticipated the Texas economy had been strong and therefore expected the CPI to be above average. However, we were both surprised by the variability even within the state.

The MSA of McAllen/Edinburg/Mission experienced the lowest inflation at just 8.82 percent during the past six years. Conversely, Midland had the highest inflation at 18.4 percent. Although the variability was blatant to Chris, he had even more questions.

"What about our area?" Chris asked.

As we further analyzed the data, he started to get the answers he was looking for. Victoria felt the brunt of 15.02 percent inflation over the past six years or 35 percent higher than the national median figure. Additionally, the San Antonio/New Braunfels MSA experienced 16.08 percent inflation, while the Austin/Round Rock/San Marcos MSA wasn't far behind with a cost increase of 14.73 percent.

The Crossroads area has been especially strong economically with big benefits, and expenses, associated with energy. As a result, there has been a corresponding increase in the demand for goods and services. Given this, the cost to live in Texas - especially South and Central Texas - has been well above the averages.

Although none of us likes to see the things we need go up in price, living in Texas offers much more in the way of benefits than many other states. Chris was pretty sure the people attempting to scratch out a living in Arizona, Nevada, Florida and a few other states would quickly agree.

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, is published every other week.

Originally published August 4 2015, Victoria Advocate