Cost of living on the rise

Study: Alaskans pay nearly double what they did in 1980

Posted: Sunday, July 10, 2005

Last year, it cost Alaskans nearly twice as much as it did in 1980 to buy the same amount of goods and services, according to an analysis in the latest issue of Alaska Economic Trends published by the Alaska Department of Labor and Workforce Development.

Shoppers were shelling out $195 in 2004 to purchase what $100 had bought them a quarter century earlier, according to Dan Robinson and Neal Fried, economists with the department.

The rate of change may fluctuate from year to year, but the cost of living in Alaska, as it is virtually everywhere else in the nation, is always upward, state statistics show.

One yardstick used to measure change is the price of food, which varies widely around the state. Data supplied by the Cooperative Extension Service of the University of Alaska Fairbanks, compared the cost of a standard food basket designed for a family of four where the children are between 6 and 11 years old.

What cost $107 in Anchorage cost $151 in Homer and $127 in the central Kenai Peninsula communities of Soldotna and Kenai, Robinson and Fried said. Thanks largely to its being connected to a road system, the peninsula sees prices far below those of Atka, the most costly community measured, where the same food cost $296.

State analysts do not break price data down far enough to provide definitive cost-of-living numbers specific to the Kenai Peninsula. They borrow a measure created for Anchorage by the U.S. Bureau of Labor Statistics called the Consumer Price Index (CPI), often referred to as the inflation rate, and use it as a basis for statewide economic analysis.

The CPI is one of two basic types of cost-of-living measures. The other examines cost differences among locations at a specific point in time, the authors noted.

The CPI, Robinson said in an interview Thursday, is "methodologically pure and a lot of funding gets based on it." A sizeable population is needed to make the CPI an effective tool. The Kenai Peninsula Borough population is not large enough, he said, but the CPI figures for Anchorage can be generalized across the state. That is, when the price of milk rises in the city, it also rises in the Bush.

The Anchorage CPI rose 21.6 points between 1980 and 2004, a rate of growth considered to be about normal based on a tendency for prices to double about every 24 years, Robinson said in an interview Thursday.

Last year the inflation rate for Anchorage measured 2.6 percent, a tenth of a point lower than the nation as a whole, but higher than the 10-year Anchorage average of 2.1 percent.

Varying housing costs provided another window on Alaska's rising cost of living. Because housing is where consumers spend the bulk of their dollars, its impact on the CPI is large. In this case, however, prices can be easily compared between locations.

On the Kenai Peninsula, a three-bedroom apartment rented for an average of $1,018 per month last year, while the same dwelling cost $1,379 per month in Anchorage. Home sale prices were highest in Juneau and Anchorage, at an average $266,000 and $265,000 respectively. In Kenai, the average sale price during the second half of 2004 was $173,000.

Those numbers have almost certainly changed in recent months as the cost of homes has skyrocketed, said Robinson.

"It was pretty constant until about a year ago," he said. "Since a year ago things have really gone up."

Homer-area Realtors and building supply companies have confirmed that materiel costs for erecting the average home around Kachemak Bay now runs between $120 and $150 per square foot. That fact has helped to drive up the prices on existing homes. Meanwhile, lots in new subdivisions are selling at a premium and fast.

Such is the case generally across the nation. Economists talk about a housing bubble not unlike the so-called dot-com bubble of the late 1990s. Housing prices, Robinson said, have been rising faster than normal for five to 10 years, but the rate of increase really picked up in the past year.

"It can't go on," Robinson said. "We are out of balance and something's got to give fairly soon."

Each year, Jeanne Camp, economist for the Kenai Peninsula Borough, edits and writes about statistical economic data compiled from a variety of local, state and federal sources in a publication called Situations and Prospects. The 2004 edition is due out in October.

Borough officials, as well as consultants working for private sector clients, she said, often request copies of the annual economic review, finding the data it contains valuable in decision-making.

At the request of borough officials, Camp said she would begin adding even more analysis of what that data says about the Kenai Peninsula economy in future issues. Among the first additions will be a deeper look at transportation on the peninsula, she said.

Camp declined to offer an opinion about what the figures published in Trends meant for the peninsula.



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