By Jim Cline and Kate Kremer
In the last couple of articles, we discussed the recent BLS June CPI data and why the June CPI numbers have outsized importance. In this article we discuss the so-called “Seattle” CPI index. There’s often confusion about exactly what the “Seattle” CPI index is and how it impacts negotiations around the State. We’ll address those questions today.
First of all, The Seattle indices (“U” and “W”) do not cover simply costs within the City of Seattle but cover use sampling from all of King, Snohomish, and Pierce counties. BLS used to include adjacent urban Counties in the Seattle CMSA region like Kitsap and Thurston but eventually narrowed the reach of this index.
Still, because those adjacent areas likely have their cost of living impacted more by Seattle Metro trends than national trends, it is common to use the “Seattle” numbers used in negotiating contracts throughout Western Washington and even sometimes in Eastern Washington. Housing prices and other components of the cost of living throughout the State are much more likely to be influenced by what’s happening in the Seattle area than what is occurring in the Midwest or East Coast. And when you are using comparables that are located inside the Seattle Metro area, it’s likely that you are looking at the trends and expected trends for those contracts.
We have written on many occasions there’s been a long-term tendency of the Seattle indices to outpace the national indices. What’s been noteworthy recently is how much that has occurred. One year ago, the All-Cities CPI was 2.3% while the Seattle number was 4.5%. While it is not uncommon for the Seattle numbers to outpace the national numbers by a fraction of a percent, that 2.3-point difference is remarkable and, as we expected, not likely to be long sustained.
We had expected (and predicted) some closing of the gap in this report, but this gap is closing even faster than we had predicted. We had more recently been expecting Seattle June numbers at or just about 4%, maybe even higher. These numbers coming in under 4% likely show the levelling off of housing prices, the factor that creates the biggest over difference between the national and Seattle formulas.
That’s the look backwards. Looking forwards, we are expecting the gap between these two numbers to continue to close further in the months ahead. If the national inflation trends continue their decline, as expected, to get closer to 2% over the next year or two, we would expect that Seattle would follow on that.
That doesn’t mean that the Seattle indices, at least over time, won’t ride a slight amount above the national numbers. As long as the Seattle regional economy continues to ride as strong as it has over the past several years, the related inflation pressures, especially on housing costs, will continue. The strong economy places demand pressures throughout the economy that simply and directly drives up prices for everything. We have said repeatedly that if you were to tie your contract to a particular index, the Seattle index is a better bet than the All Cities, and we continue to make that recommendation.
In our next newsletter, we’ll discuss our preliminary assessment as to how these inflation developments may impact current and near-term contract negotiations.
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