According to the report, inflation for the combined Denver-Aurora-Lakewood Statistical Area is forecast to be 7% in 2022 and 3.8% in 2023.
DENVER — As state lawmakers work to finalize the state budget, they also work to accommodate the quarterly economic reports they receive.
These reports also shed light on the state of the economy in Colorado and the latest report This week provides an insight into the projected future of inflation in the state.
“After staying below the national average throughout 2021, Colorado’s inflation rate exceeded the national rate in January 2022.” is the report.
The report is submitted to the state’s joint budget committee and is compiled by state analysts with staff from the Colorado Legislative Council.
Nationwide consumer inflation is expected to increase by 7.1% in 2022 and 3.9% in 2023.
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Inflation for the combined Denver-Aurora-Lakewood Statistical Area is projected to be 7% in 2022 and 3.8% in 2023.
“In January 2022, headline inflation reached 7.9%, while core inflation reached 7.0%. Similar to the national trend, the largest price increases were in energy and transportation, with increases of 25% and 21%, respectively,” the report said.
Core inflation excludes food and energy prices, while headline inflation includes all products and services.
Analysts believe inflationary pressures in recent months have been driven by four main factors, including higher global demand for goods, supply chain disruptions, higher energy prices and the war in Ukraine.
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“…It’s just a combination of things that we don’t have a really good sense of what the forecast is going to be for. And that uncertainty itself tends to drive up prices,” said Stephan Weiler, an economics professor at Colorado State University and director of the university’s Regional Economic Development Institute.
Specifically for Ukraine, the report notes that the war poses risks to the inflation outlook, “…with damage to infrastructure in the region and the impact of sanctions on the global economy likely to outlast the land conflict.”
Weiler said the references to Ukraine in the report make sense.
“I mean, the pandemic was the same,” he said. “It was the uncertainty that caused all prices to rise when there were disruptions in the supply chain.”
He added that Colorado specifically has certain “vulnerabilities” that could drive local inflation rates.
“Like housing, so you know where we really are… we’re increasing the amount people spend on housing,” he said.
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According to the report, the Denver-Aurora-Lakewood area’s residential construction component accelerated in late 2021 after remaining well below its historical average for much of 2020 and 2021.
On wages, the report states: “While the tight labor market is generating substantial wage increases, many households are increasingly withdrawing from savings as inflationary pressures outpace wage growth for most.”
Weiler again acknowledged that wages are part of the inflationary drive.
“If you’re a manager of a restaurant, for example, and you have to pay your employees a little more, that means higher prices for your customers,” he said.
Overall, he said it’s difficult to forecast the future of inflation with so much uncertainty, but there are some things that could ease the pressure on markets.
“I’m hopeful in the sense that the Ukraine crisis will be resolved, that oil prices will calm down,” he said. “You know housing, I mean housing is a tough one, but it’s going to take a while, but hopefully more affordable housing construction can help. So, I mean, those are the things that can ease that pressure in the marketplace. I mean, it’s possible that gas prices will go up. I’d like to think that it’s not going to stay where they are now, that those prices could actually go down in the future.”
The report also found that Colorado hit its lowest unemployment rate since February 2020 at 4.1%.
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