Phoenix area inflation has cooled since its peak last summer, but the region’s 4.4% increase since last June is still higher than the national average of 3% over the same period, new data shows.

Bureau of Labor Statistics numbers released Wednesday said that the nation posted the lowest 12-month inflation increase since March 2021. BLS said that while costs for shelter, clothes and food increased from May to June, the cost of energy remained sharply down for the year, while costs for air travel, used cars, household furnishings and more fell from month to month.

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In the Phoenix metro area, inflation fell from a peak of 13% last August, with the drop attributed to slowing increases in home prices and rents, followed by lower gas and a slow-down in food prices.

“We’ve seen a decline in inflation both nationally and in Phoenix because food and gas prices have come down and because of what’s going on in shelter, particularly in Phoenix,” said George Hammond, director of the Economic and Business Research Center at the University of Arizona.

Hammond also pointed to the Federal Reserve’s interest rate hikes over the past year as a “significant” driver for the decreased inflation rates. But he said there is still a “long way to go” before the Fed reaches its target goal of 2% core inflation – the consumer price index excluding volatile food and energy costs.

“I think the Federal Reserve will continue increasing interest rates until they believe that they’ve hit a level that will generate inflation at the target they’re trying to hit, which is 2% in the core index,” Hammond said Wednesday.

For the Phoenix-Mesa-Scottsdale region, Hammond said the biggest driver in the deceleration of inflation is home affordability and the real estate market.

“Within the consumer price index, by far the biggest influence comes from housing and, within housing, shelter is the biggest component,” Hammond said. “So that’s, I think, the major driver of what’s going on in the deceleration of inflation in Phoenix.”

While the June-to-June increase in the cost of metro-area shelter sounds high at 12.1%, that is down sharply from its peak last September of 19.5% for owner-occupied homes and rentals.

Hammond said last year’s rapid rise in single-family home prices, combined with a doubling of mortgage interest rates, put homes out of reach for many. That led to a downward pressure on home prices and rents, which brought Phoenix’s overall inflation down with it.

Median home prices in the Phoenix metro area were down roughly 8.8% in May from the preceding may, according to data from the Economic and Business Research Center.

“The rising home prices and rising interest rates have caused housing costs to greatly outstrip income and that means that people can’t afford to buy. If they can’t afford to buy, prices come down,” Hammond said.

Hammond said while housing affordability improved slightly in the first quarter of the year, he does not expect affordability to return to pre-pandemic levels any time soon. He does not see significant improvement for “at least the next couple of years.”

Energy prices in the Valley decreased by 12.0% since last June, driven by a 20.7% decrease in the price of gas. The cost of electricity services did not change over the year.

The price of food for the Phoenix-area was up by 6.8% compared to a year ago, with the cost of dining out rising by 9.8% but the cost of groceries growing only by 4.9% for the year. The biggest increase – 17.5% for cereals and bakery goods – was offset by year-to-year declines in dairy, meat, fish and eggs, among other categories.

Hammonds said he predicts core inflation in Phoenix and nationally will continue to decelerate as the increase in the price of shelter slows down.

“Core inflation that excludes food and energy is a little bit more stable,” Hammond said. “I do think that core inflation will continue to decelerate as shelter inflation decelerates.”

Nationally, the cost of shelter increased 7.8% over the last year, which accounted for more than two-thirds of the total increase in U.S. core inflation. The higher rates in Phoenix are largely to blame for its overall higher inflation rate, Hammond said.

“Phoenix inflation has been outpacing the nation primarily because of what’s going on with shelter,” he said.

But with increases in Phoenix-area shelter now trending down, Hammond said he expects the region’s inflation to fall more in line with the nation after months of outpacing U.S. inflation numbers.

“Inflation has come down significantly,” Hammond said. “So the trend is in the right direction, but you know, we’ve still got a long way to go. It will be at least sometime in 2024 before we’re likely back at the Fed’s 2% target.”

The Federal Reserve is scheduled to meet later this month, and a possible interest rate increase is expected to be on its agenda.