A key inflation metric shows that growth in consumer prices in Colorado is cooling faster than the national average, state forecasters told lawmakers this past Thursday.
Louis Pino, an economist for the nonpartisan Legislative Council Staff, told members of the Legislature’s Joint Budget Committee that the sharp decline in the consumer price index in Colorado since mid-2023 has been driven by a softening housing market.
“We have been seeing at least through the last half 2023, there has been a slowdown in rental prices,” Pino said. “Through 2024, at least through the first couple of first months of data that we have, we’re seeing that the rental market is somewhat cooling. If anything, we are expecting to see it to continue to slow down.”
Overall U.S. consumer prices have grown at a steady annualized rate of around 3% in the last year, with the latest nationwide CPI measured at 3.3% in May. But the index for the 10-county Denver metro area used in the state’s inflation calculations fell to 2.6% last month, after hovering at above 5% as recently as last September. Driven by factors including pandemic-era supply chain pressures and elevated consumer spending, both the Colorado and U.S. inflation rates peaked at around 9% in early 2022, the highest level in decades.
Even with the cool-down, however, housing prices as measured by CPI are still rising 4% annually in Colorado, and are by far the largest driver of overall growth in the state’s cost of living. Home prices alone account for over 2% of the top-line 2.6% inflation rate in the Denver metro area in May, noted LCS chief economist Greg Sobetski.
“We are still seeing year-over-year growth in home prices that are contributing to inflation,” said Sobetski. “So while this is a better outlook than we had a year ago, this is still the most important contributor to rising prices in Colorado, that’s going to affect different folks differently.”
The General Assembly’s powerful Joint Budget Committee, a six-member panel that oversees the state’s annual budget-writing process, receives two different economic forecasts each quarter, one prepared by LCS and the other by the governor’s Office of State Planning and Budgeting.
The June 2024 forecast released by LCS on Thursday says that economic conditions are “susceptible to a downturn if confronted with major shocks,” but despite falling consumer spending and an uptick an unemployment, it doesn’t project a recession in 2024.
“Colorado’s economy is expected to modestly outperform the nation’s, with comparable employment growth in 2024, higher income growth, and lower inflation,” the LCS report said.
The report is the first since the end of a 2024 legislative session during which lawmakers enacted an unusually large number of tax credits and other measures that could significantly impact the state’s budgetary outlook, Sobetski said. While the state is likely this year to collect revenue in excess of the limit set by the Taxpayer’s Bill of Rights – requiring the excess revenue to be returned through refund checks or other mechanisms – tax revenues may fall short of the cap in subsequent years, even without a recession.
“I think it’s highly unlikely that you will not have a TABOR surplus for 2023–2024,” Sobetski said. “(But) 2024–2025 is a completely different story.”
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