Why is it more expensive to live in Providence than in Boston?

That’s the question I had after seeing this chart in the new Rhode Island economic forecast released by Moody’s Economy.com as part of the Revenue Estimating Conference. It shows the change in consumer prices – that is, inflation – since 2000 for Providence, Boston and the U.S.:

For the last decade (at least), the cost of living has been rising faster in Providence than in nearby Boston or nationwide. While the cost of some individual item may be lower here, prices overall have increased about 33% since 2000 in Providence, compared with 27% in Beantown. Why would that be?

Probably because of rents, according to Zach Sears, Economy.com’s new Rhode Island analyst.

“Providence has had a relatively low [rental] vacancy rate, meaning a tighter market, and this would push up rents,” Sears told me in an e-mail. “This was particularly true in the first half of the last decade, when demographics were more positive and the housing stock was not growing much. This dynamic changed in the second half of the decade, as out-migration turned negative and the housing stock started growing faster, easing these pressures, and vacancy rates increased.”

That makes sense. Rhode Island saw the second-largest increase in the cost of renting a two-bedroom apartment over the last decade, behind only Hawaii, according to a study released earlier this month by the National Low-Income Housing Coalition. A household needs to make $39,853 a year – $19.16 an hour – to cover the $996/month fair-market rent for a two-bedroom in Rhode Island, the study said.

Sears’ analysis is also worrying because the rental vacancy rate in Rhode Island has dropped sharply since 2009, and a tighter market could mean higher rents, as I mentioned back in February. And the same trend is expected to be seen across the U.S., Bloomberg News reported last week:

Apartment rents and occupancies are likely to continue to rise as the U.S. home and labor markets remain depressed, economists said at a conference sponsored by investment-advisory firm Bentall Kennedy. …

U.S. apartment vacancies dropped to the lowest in almost three years in the first quarter as the weak homebuying market fueled demand for rentals, according to Reis Inc. …

An estimated 4 million to 4.5 million people per year in their 20s and early 30s are entering the housing market at a time when 28 percent of American homeowners with mortgages owe more than their houses are worth, Poutasse said yesterday at the conference in Vancouver. So-called echo-boomers desire mobility and see properties with negative equity as a hindrance to selling and moving elsewhere, he said.

“This generation isn’t going to behave the same way with housing,” Poutasse said.

Everyone’s talking about it – the quick spike in food and gas prices over the last few weeks is leaving people with less money to spend and more reasons to seek out cheaper goods.

And no wonder: Americans are now spending more than 22% of their wages and salaries on food and fuel, according to a new research note from David Rosenberg, the bearish ex-Merrill Lynch economist now with Gluskin Sheff, picked up by Economix.

Here’s why Rosenberg says “the outlook for the U.S. consumer” – and, perhaps, the whole economy – “is grim”:

As the chart below shows vividly, over 22% of wages and salaries are now being devoted to the cash register at the local food store and at the pumps — we’ve only seen this level two other times in the past two decades and both ultimately landed the economy into recessions that ensnared discretionary household spending. … The good news — a new bull market in frugality, ‘trade down’ goods and private label is likely on its way again.

But, just like in 2008, this may not be a lasting trend – because wages aren’t rising to keep up, as The Economist’s Greg Ip points out.

(chart: Gluskin Sheff & Associates)

The other night I complained that David Cicilline and John Loughlin were pandering to elderly voters by supporting increases in Social Security benefits even though the government’s measure of the cost of living has not risen since the last increase in 2009.

As The Associated Press explained on Friday, the reason there was no automatic increase this year and won’t be one next year is because high energy prices in 2008 led to a huge 5.8% increase in Social Security benefits at the start of 2009 – even though gas prices had long since fallen from the prior summer’s $4-a-gallon record highs:

“They received a nearly 6 percent COLA [cost-of-living adjustment] for inflation that no longer really existed,” said Andrew Biggs, a former deputy commissioner at the Social Security Administration and now a resident scholar at the American Enterprise Institute.

“Seniors aren’t being treated unfairly, here,” Biggs said. “It looks bad, but they’re actually not being treated unfairly.”

By law, the next increase won’t come until consumer prices rise above the level measured in 2008. The trustees who oversee Social Security project that will happen next year, resulting in an estimated 1.2 percent COLA for 2012.

Still, the average person’s perception of inflation is often very different from what official data shows. And either way, a report in today’s Wall Street Journal warns that the rising cost of commodities like grain, cheese, meat and oil mean we may see prices rising at the supermarket in the coming months:

Corn is up 44%, milk is up 6.5%, hot rolled coil steel is up 4%, copper up 29%, and oil up 14% from a year ago. At this point it’s difficult to quantify how broadly these price increases will affect future earnings. The big unknown is not only how much further commodity prices will rise, but how much of that added cost companies will be able to pass along in the form of higher prices. …

Grocery stores have struggled with price deflation in the last few years and had welcomed signs of food inflation as a means of raising profits by passing along the higher prices to consumers. But with intense competition for customers resulting in fierce discounting battles among stores, inflation isn’t as welcome now.

The big chain stores see their costs either already rising or expect them to, and they’re growing nervous about the prospect of passing those higher costs on to price-conscious consumers.

Case in point: [Shaw's Supermarkets parent company] Supervalu Inc. lowered its fiscal 2011 earnings outlook on Tuesday saying it plans to continue cutting the prices it charges for products, even as the prices it is paying for them are rising. Chief Executive Craig Herkert said he received notice by a “major supplier” the day before that “significant increases across the board” were coming.