Federal spending boom boosts inflation in region

ECONOMIC NAVIGATION & SIGHTSEEING

Blogging Biz

December 30, 2007|By JAY HANCOCK

You probably didn't know this, but your wallet does. The post-2001 federal spending boom has made inflation substantially worse in the Washington-Baltimore corridor than in the rest of the nation.

This will be the sixth year in a row in which consumer prices have risen more locally than in the rest of the country, according to the Bureau of Labor Statistics.

The national figures are bad enough: Through November consumer prices were 4.3 percent higher than in November 2006, one of the worst showings in a decade. The news caused stock markets to plunge two weeks ago when it was announced.

In Baltimore-Washington, however, the 12-month price pop was even higher - 4.5 percent. Driven by electricity prices and housing and food costs, Baltimore-Washington inflation hasn't trailed that of the nation since 2000 and 2001, when the regional technology bubble was letting out air.

Monetarists, who believe that inflationary price increases are always explained by increases in the money supply, would not be surprised. The housing-credit bonanza, the war in Iraq and the rapid rise in homeland security spending have showered the region with dough.

Check out David Nitkin's story in Thursday's edition of The Sun, which reported that Maryland companies reaped $24 billion in federal contracts for fiscal 2006. This is an enormous amount - about a 10th of Maryland's entire economy.

Thanks to annual compounding, local-inflation pain has gotten worse with time. Baltimore-Washington consumer prices have risen 22 percent since 2001. Nationwide, prices have risen 18 percent. Unfortunately, the recipe for lower local inflation - the end of the boom - would cause trouble even worse than higher prices.

jay.hancock@baltsun.com

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