Does Inflation Vary between Cities?

Abstract

Apart from occasional anecdotal observation, there has been little systematic study of the patterns of local inflation. The strongest theoretical argument is that local price inflation should be no different from national inflation. Alternatively, it has been suggested that spatial price equilibrium is implausible and that spatial price interdependence is more likely. Quarterly data for some sixteen large US urban areas over the period 1950–1980, are analyzed via stochastic time-series models. It is concluded in this paper that, although inflation does vary, if only slightly, between cities and with respect to the nation, in some instances national inflation may fairly represent local inflation.