Why are gas, groceries, housing so expensive in Pierce County? Tacoma economist explains

Inflation seems to be on everyone’s minds these days. You see its effects in the supermarket, at the gas pump and your paycheck.

But what is inflation really? How is it impacting the economy in Tacoma and Pierce County? Why do we pay higher prices for groceries, gas and housing in Western Washington compared to other parts of the country? And would President-elect Donald Trump’s tariff policies change that?

To answer those questions The News Tribune met with Andrew Monaco in his office this month. Monaco is an associate professor of economics at the University of Puget Sound and is also chair of the economics department. Although the economy is a hot topic of debate right now, Monaco said there are a lot of things people don’t understand about how the economy works and what can be done to make it stronger.

Why is it so expensive to live in Tacoma and Western Washington?

Monaco said there are multiple reasons it’s more expensive to live in Western Washington and the Seattle area than other parts of the country. For one: This area is desirable enough that people want to move here and are willing to pay for it. Last year the “Today” show ranked Tacoma as one of the top places to live in the United States.

People are attracted to the natural beauty of the area, in addition to the public services and strong economy, which makes Washington a high-demand part of the country. That has a direct effect on the cost of living, Monaco said.

“The more people you’ve got, and the more dollars there are here to be spent on things, there’s that upward pressure on the prices,” he said. “Especially when the big draw for a lot of people to move here are high-paying industries, [like] tech, finance — especially in Seattle — that is going to attract high-income households to move to the area.”

As more people with more wealth move to Seattle, Tacoma and other places in commuting range, it adds pressure to the housing market, which results in higher rental and mortgage prices, Monaco said.

Increased demand for the limited available housing, older housing stock that favors single-family households and limited buildable land have resulted in a shortage of all types of housing in Pierce County, especially for people with moderate, low, very low and extremely low incomes, as previously reported by The News Tribune.

Higher labor, construction and permitting costs, in addition to high interest rates, have also slowed the rate of new builds. Price levels for construction materials, for instance, remain 25% higher than pre-pandemic levels, according to the 2024 Pierce County Economic Index.

Part of Pierce County’s growth strategy is supporting alternatives to single-family housing, like duplexes, triplexes, townhomes, apartments and accessory dwelling units, in addition to reducing costs for developers and strengthening affordable housing initiatives. The Tacoma City Council passed Phase 2 of its Home in Tacoma affordable-housing action strategy last month, which “allows for more types of housing to be built in more areas of the city and is designed to meet, and in some cases exceed, state requirements to help boost supply,” as reported by The News Tribune’s Debbie Cockrell.

Why are groceries and gas prices higher here?

Why do residents see higher grocery prices in Western Washington? Monaco said that is another example of higher cost of living in the greater Puget Sound region. Grocers are able to charge higher prices here because there’s enough higher income residents able to pay those prices, he said.

Grocers, like other store owners, also have to pay higher rent in Washington and pay their workers higher minimum wages than in other states, which all impacts the cost of goods, Monaco said.

In the last 40 years, companies’ market power, or ability to manipulate the price of an item in the marketplace, has grown considerably. In 1980, companies charged an average markup of 21%, but in 2020 that average markup is 61%, Monaco said, citing an economic journal article titled, “The Rise of Market Power and the Macroeconomic Implications.” According to the article, although companies have seen an increase in overhead costs, “the markup increase is in excess of overhead,” resulting in many macroeconomic implications, including lower consumer well-being, a decrease in demand for labor and investments in capital and reduced competition.

As to why Washingtonians pay more per gallon of gas, Monaco said gas prices are largely determined by the global oil market, not the state, president or Congress. The average price of gas was $3.97 per gallon in Pierce County as of Dec. 12, as reported by the AAA. That’s down from $4.19 per gallon a year ago. The average price of gas nationwide was $3.03 per gallon as of Dec. 12, according to the AAA.

As previously reported by The News Tribune, two primary factors are driving a recent rise in gas prices: supply and demand and crude oil prices. Mellani McAleenan, senior manager of public affairs with AAA Washington, told The News Tribune last year the mountainous topography of Washington limits gas supply lines to running north and south, compared to other states that have supply lines running in every direction, which makes gasoline more expensive to transport.

Another factor is that Washington has the third-most expensive gas tax in the United States, $0.49 per gallon compared to the national average of $0.29, according to data platform WiseVoter. Revenue from that tax maintains the state’s transportation infrastructure, including roads, highways and bridges.

A state carbon-pricing program, as part of the Climate Commitment Act launched in 2023, charges businesses for the greenhouse gases they emit by auctioning off emission allowances. Experts say oil companies have passed those costs onto consumers recently, by about $0.50 per gallon, despite pulling in record profits of $200 billion in 2022, as reported by the Seattle Times.

Has the economy gotten better since 2020?

All in all, the economy has gotten better since 2020. The unemployment rate is lower than it was then, and the rate of price increases has slowed, although many goods and services are still more expensive than they were pre-pandemic.

When COVID-19 swept through the world and ushered in the shutdown of many industries in 2020, it disrupted supply chains, prompted job uncertainty and resulted in a huge spike in unemployment that peaked at 14.8% in April 2020, according to the U.S. Bureau of Labor Statistics. Prices for goods and services rose, and the Russian invasion of Ukraine in early 2022 also affected the price of oil, natural gas, fertilizer and food prices, further exacerbating the situation.

Inflation refers to the general rate increase in the price of goods and services over a certain time period. The percentage change in the price of all goods, including food, housing and energy, peaked nearly 9% to 10% in the Seattle-Tacoma-Bellevue area in the summer of 2022, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index.

In 2022 and 2023, the Federal Reserve Bank raised interest rates to slow inflation, making it more expensive to borrow money. The Federal Reserve lowered interest rates starting in September 2024.

As of October, the percentage change in the price of all goods, including food, housing and energy slowed in the United States to a rate change of between 3% and 4%, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index. In November unemployment was reported to be 4.2% nationwide.

Does Monaco predict the economy is in for another financial crash? He says there’s no way to know for sure, but the signs are pointing to stabilization for the time being.

“For the most part, you often don’t know when the bubble is going to burst until it’s already burst,” Monaco said. “Now, from an inflation perspective, inflation has come down since 2022 and that’s true both at the national level and for the local economy. So things might still be getting a little bit more expensive, but the prices aren’t growing at the same rate that they were just a couple of years ago. That suggests that we’re not quite there yet.”

How would Trump’s tariff plan impact the economy?

A vast majority of economists agree on one thing: tariffs are bad for business, Monaco said. Which means if Trump follows through on his threat to impose a 25% tariff on all Canadian and Mexican goods and a 60% tariff on Chinese goods imported into the United States, that means consumer prices would likely jump even higher.

Tariffs are taxes imposed by a country on goods or services that come in from another country. Governments can impose tariffs to protect domestic industries, raise revenue and exert economic leverage over other countries. But tariffs can also have negative consequences, like resulting in a trade war and pushing the increased cost of imported goods onto the consumer.

Some argue tariffs will encourage more consumers and businesses to buy American goods, but Monaco said that argument doesn’t mean as much in 2024 as it did in the past.

“We make Mercedes in the United States and there are Fords that are made in Mexico. It’s not as easy as just like ‘American company’ [versus] ‘non-American company’ anymore, right? And so this notion of ‘buying American’ it almost like, doesn’t make sense in 2024 because of the way that the global economy is right now,” Monaco said. “Things are just too interconnected. … We need them, and they need us.”