The nation’s regional inflation rankings have turned upside down.

For years, inflation has been higher in the South and West because Americans flocked to those areas for their temperate climates and lower costs, driving strong consumer demand and higher prices.

That trend was amplified by the pandemic. As remote work spread, many people streamed out of densely populated Northeastern and Midwestern cities like New York and Chicago for less costly areas with lots of open spaces, like Tennessee's Nashville and Idaho's Boise.

But the pecking order has reshuffled.

What area has the highest inflation?

In June, the Northeast had the country’s highest annual inflation at 3.8%, up from 2.5% in January, according to the Labor Department’s consumer price index. Meanwhile, inflation has dipped below 3% in both the South and West. Since early in the year, 12-month price increases have slowed from 3.4% to 2.9% in the South and from 3.3% to 2.8% in the West.

Protect your assets: Best high-yield savings accounts of 2023

Massachusetts, for instance, was saddled with the highest inflation among the 50 states last month at nearly 4%, according to Moody's Analytics estimates based on Labor Department data. Early this year it had the seventh lowest at 2.2%. Meanwhile, Florida is in the middle of the pack with 3% inflation after taking the No. 1 spot in early 2024 at 3.9%.

The Midwest has remained fairly stable, with inflation edging down from 2.7% in January to 2.5% last month, lowest among the four regions. And the U.S. overall has seen yearly inflation inch down from 3.1% to 3% as a spike early in the year was followed by a recent cooldown.

The turnabout among the regions largely has been fueled by a a spike in Northeastern housing costs, a fading pandemic and an immigration surge that has disproportionately affected that large cities in the region, said Moody's regional economist Adam Kamins.       

“Some of what we’re seeing is makeup” economic and price gains following the health crisis, Kamins said. “The Northeast…is bouncing back."

Cumulatively, since the inflation run-up began in 2021, consumer prices are still up more dramatically in the South and West than the Northeast and that’s probably how most Americans feel the cost changes, Kamins notes. Still, the annual inflation numbers reflect the more recent trend captured by government reports and news headlines.

Also, keep in mind that on a monthly basis, inflation has continued to ease in all four regions. But the downshift has been slower in some areas than others. In the Northeast, for example, average consumer prices rose 0.4% in May and 0.3% in June, compared to increases of 0.1% and zero in the South.

Are rents still rising and pumping up inflation?

A big part of the story is housing. As Americans converged on the South and West, developers rushed to put up new houses and apartments, providing landlords less leverage to hike rents, Kamins said. Far fewer housing units have been built in the Northeast, he said, both because the region has lost residents and there’s less available land.

“New York, Boston and other metro areas with slower job and population growth are not seeing the new inventory growth in housing,” said Barbara Denham, senior economist at Oxford Economics.

In January 2022, average housing costs, including rent, were up 6.4% annually in the South Atlantic (which includes the Carolinas, Georgia and Florida) and 5.2% in New England, according to Moody’s and Labor figures. Last month, housing costs were up 6.4% in New England and 4.3% in the South Atlantic.

Is immigration to the US increasing or decreasing?

The U.S. also is experiencing a historic immigration surge. An estimated 3.3 million migrants will enter the country this year, up from an average of about 900,000 the decade before COVID, according to the Congressional Budget Office. Many are settling in large Northeastern cities such as New York, Boston and Philadelphia, Kamins says, helping push up housing costs and stoking demand and prices for other products and services.

That means a more vibrant economy and more jobs, as well as higher costs.

Are people moving back to big cities?

More broadly, the Northeast is still losing residents to the South and West but the losses have diminished as the pandemic has eased. Many residents, companies and tourists have returned to downtown districts in New York and other large cities, putting upward pressure on economic activity and prices, especially for activities such as dining out.

 At the same time, more businesses have come back to those cities than workers, creating labor shortages that have nudged wages higher – a cost that’s typically passed on to consumers through higher prices. Although the share of job openings and pay increases in the South still outpace those in the Northeast, the gap between the two regions has narrowed, Labor Department figures show.

Millennials favor real estate, cryptoWealthy millennials are rejecting stocks for 'alternative' investments. What are they?

Are car prices dropping?

Still another factor is car prices. They shot up early in the pandemic because of supply-chain bottlenecks but have since fallen substantially as those snarls have resolved. Yet because fewer people buy cars in the public-transit dependent Northeast than in the South and West, they weren’t hit with as much of a price bump. Now they aren't seeing as large a decline.

"The changing geographic footprint (for inflation) ushers in a new phase, in which price pressures are abating more rapidly in areas that have been dealing with especially high inflation over the past couple of years," Kamins says.