Expensive Here, Cheap There

How much you spend on basic items depends a lot on where you live.

Nov. 15, 2008 — -- Think your last grocery bill seemed pricey? Be happy that you don't live in Sacramento, where a half-gallon of milk costs $2.97 on average. In fact, Sacramento's milk prices rank the highest of any major metropolitan city in the country.

New York City is another pricey spot. Not only are the city's average monthly mortgage, rent and energy bills the highest of any major city in the country, iceberg lettuce rings in at $2 per head, on average--double the price found in other cities. Sure, $2 isn't going to bankrupt you, but as prices of everyday goods continue to rise and the economy continues to tank, seemingly small costs such as these begin to add up.

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And things aren't getting any better. Just last week, the government announced unemployment was at 6.5%. It hasn't been this high in 14 years. No wonder consumer spending was down 0.3% in September, according to the Commerce Department.

As the economy continues its decline, those in San Antonio are far less likely to feel the pinch--at least when it comes to food prices. Residents there pay just $3.08 for an 11.5 oz. can of freeze-dried coffee, compared to $5.91 in San Francisco. And when it comes to bread, San Antonians win again: The average cost of a loaf of white bread is just $.79. In Manhattan, bread costs over three times that amount, at $2.68 per loaf.

Behind The Numbers

An urban area is defined as an area of 50,000 or more people within an MSA. That means "satellite cities"--smaller cities within the MSA--are separated from the larger cities in this survey. Take Boston. Although a small city like Quincy, Mass. is a part of Boston's MSA, it was considered a separate city when compiling this research. Only Boston proper--which boasts an estimated 2008 population of 616,535--was included in the information offered about "Boston." Places like Brookline and Cambridge, which are also part of the overall Boston MSA, were not included.

But why are there such huge disparities across the country when it comes to everyday items? Sure, with its overpopulation and disproportionately high incomes, it makes sense that New York has the highest per-month mortgage rate, on average, or that Seattle--with its government-run energy supply--boasts the lowest monthly energy costs.

But what is it about San Antonio that keeps its food prices so low? Or New York's energy costs so high?

Erol Yildirim, director of data products at C2ER, says that in the simplest terms, it has to do with supply and demand. In San Antonio, for example, the median household income was $36,214, according to the U.S. Census Bureau. In Manhattan, the median income per household is $47,030. "People who make less money demand less, which means suppliers can't afford to charge more," says Yildirim.

Prices Rising Everywhere

For example, the total rise in food costs over 2008 is expected to be 5% to 6% nationwide, according to the U.S. Department of Agriculture. That's the biggest increase since 1990, which means we're all, on average, paying more to eat than we were in 2007.

And on a microeconomic level, prices have a lot to do not only with personal income in specific areas, but with the health of the city's very specific economic woes or triumphs. For example, part of the reason why many cities in California report high food prices has to do with the fact that energy and fuel costs in the region are high.

In Boston, a pair of denim jeans for boys cost $40, on average, in the third quarter of 2008. Why were they nearly three times more expensive there than in Indianapolis? There were fewer markdowns at the first city's retailers, meaning the demand was higher and the economy was stronger. And while the median household income in Boston is $52,792, it's just $40,051 in Indianapolis.

Unfortunately, as the economy worsens, this disparity between cheap and expensive isn't going to go away.

It's really a matter of the chicken or the egg: Workers in cities that provide a service or product that is in high demand need bigger salaries because costs are higher, and costs are higher because salaries are bigger. That's a difficult--if not impossible--cycle to break.

"If wages are higher to adjust to higher costs, then as long as the city/region can still produce a good or service that is in great demand elsewhere (e.g. finance in New York or software in Silicon Valley), then differences can certainly persist," says Dr. Dean Baker, co-director of the Center for Economic and Policy Research.

And then again, it's all relative. For the 250,000 auto workers in Michigan fearful for their jobs, $40 may be a heck of a lot for a pair jeans. For others, that's chump change.