South Florida has the second highest inflation rate in the country. While the pace of higher prices has cooled quite a bit nationwide over the past year, it hasn’t here.
In June, consumer inflation was 6.9% in the Miami-Fort Lauderdale-Palm Beach region. Only Tampa had a higher number among the largest metropolitan areas in the nation.
At 3%, the overall national inflation rate came in at less than half the South Florida inflation rate and represents the lowest annual increase in two-and-a-half years. But that doesn't tell the story in our region.
“Talking at that high level, I think can kind of smooth over some experiences that families and businesses have,” said Federal Reserve Bank of Atlanta President Raphael Bostic. The bank, one of a dozen regional banks within the federal reserve system, has a branch in Miami and oversees Florida .
Bostic spoke to WLRN News before the June Consumer Price Index data was released on Wednesday.
The Federal Reserve has been aggressive raising interest rates to bring down inflation. In June, for the first time in more than a year, the central bank did not increase rates.
The bankers meet late this month for their next look at the economy and to decide if they want to raise interest rates again. It is widely expected to return to raising rates when it meets July 25-26 in Washington, D.C., an action Bostic believes is not necessary. "I'm comfortable being patient and giving more time to see how our policy plays out,” he said.
Bostic may disagree with some of his Federal Reserve colleagues, but he is not a voting member of the Fed’s interest rate setting committee this year.
"I do think that because of the trajectory of our policy actions, there is still some restrictive activity that's going to happen, that the effects of our policy have yet to come fully through,” he said.
Higher and longer inflation
That may be the case in South Florida with that second-highest-in-the-nation inflation rate.
Housing and rent costs are big reasons why inflation remains hotter here than almost any other area. The increase of the so-called shelter component of consumer inflation in South Florida is more than double the national rate.
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“During the pandemic, many, many homeowners refinanced into very low cost mortgages,” noted Bostic. “And that means that the number of homes that are actually being put up for sale are fewer than what we have seen historically.”
Fewer homes and condominiums for sale and demand from people moving into Florida have kept prices and rents high. This despite the Federal Reserve aggressively raising interest rates over the past year and a half pushing up borrowing costs for would-be home buyers. Normally, that would put downward pressure on home prices.
Average home price increases have cooled in the region, but this is after double-digit increases over the past few years.
“The high interest rate means that starter homes are not going to be accessible to a lot of people, many who live in those medium mid-market homes. They're not selling them. And so the homes that would have transacted at those lower prices have just been left off of the experience,” said Bostic.
Watching office space
Another part of the real estate market that is vital to South Florida’s economy is commercial real estate — warehouses, retail and office buildings. Last month, Bostic expressed concerns about commercial real estate. "Credit risk is likely coming," Bostic told the CFO Roundtable in Georgia.
His concerns target office buildings with the continued practice of remote work for many companies.
“That means you're going to have less demand for office space, which means that the rents that office property owners can expect to have are going down, which means their ability to cover existing mortgages is going down,” said Bostic. “That loss of rent is going to be perhaps too much and then they're going to not be able to cover. So that's credit risk there.”
But we haven’t seen that in South Florida. In the first quarter, the vacancy rate of top-notch office buildings was around 20% in Miami-Dade and Broward, below the national average, and well below San Francisco, New York and Chicago. And asking rents were rising here as well.
Despite watching commercial real estate values, and how banks holding commercial real estate mortgages handle any signs of weakness, Bostic is optimistic about the economy. He is not predicting a recession, but rather patience.
“Very, very slow growth, maybe [ we ] stay stable for some period of time and start to see growth again in 2025," he said.
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