Though inflation has dropped enough for the Federal Reserve to cut interest rates Wednesday, inflation in Baltimore has increased in recent months.

Inflation in the Baltimore metro area has been 3% since June, half a percentage point higher than the national rate, according to the Bureau of Labor Statistics. Housing has been a primary driver of inflation both in Baltimore and nationally.

The anticipation of a rate cut had already led to a drop in mortgage rates, meaning Baltimoreans may soon see housing costs drop. How the Fed’s change in strategy will affect other parts of the economy will become evident in the coming months.

The local inflation rate was almost a full percentage point lower than the national rate at the end of 2023. The rate began to tick up in January, picking up steam around the time the Key Bridge collapsed, thought it is unclear how much the collapse has affected inflation.

The difference between Baltimore’s inflation rate and the national rate has been driven in part by food prices, medical services and transportation costs, according to a Bureau of Labor Statistics regional report and three local economists.

Local food prices are up 2.7% from last year compared to 2.1% nationally, driven by higher prices for cereals and bakery products. Other goods and services, such as tobacco and haircuts, have also risen 3.8% since last year.

Although the collapse of Francis Scott Key Bridge in March was a shock to the region, local economists disagree about how much of a role it has played in inflation here.

“You have all of the national issues going on, but on top of that, you take a primary shipping hub and you take it offline, that means, instead of using efficient means of transporting goods to our region, now you’ve got to rail it in or truck it in from somewhere else,” said Michael Faulkender, professor of finance at the University of Maryland and chief economist at the America First Policy Institute.

Not everyone agreed. Linda Loubert, associate professor of economics at Morgan State University, was a “little doubtful” that the fall of the bridge has had a large impact on Baltimore’s inflation in the grand scheme.

The Fed’s dominion over the federal funds rate, which dictates the cost of borrowing, is its primary policy tool for achieving its dual mandate — ensuring low unemployment and stable prices.

In many cases, borrowers won’t feel the effects until a few months from now. However, the rate cut does mean that as long as the Fed can keep inflation under control, borrowed money will be easier to come by.

Interest rates are vital to businesses and consumers alike, and it’s been a pain point for the turbulent housing market, which has struggled with low inventory and high interest rates for years now. Lower mortgage rates could kick-start the market.

Housing inventory has been low because people don’t want to sell while mortgage rates are high, said Daraius Irani, vice president of strategic partnerships and applied research at Towson University. Lower inventory and higher prices could also help explain higher rent prices.

Mortgage rates had already started to drop in anticipation of a cut. The prospect of lower rates also appeals to property owners, like some of the area’s embattled commercial landlords, who might be interested in refinancing.

Ultimately, much of the collective excitement surrounding the rate cut is based on what it could mean versus what it means right now. Inflation numbers are moving in the right direction, but there’s still a ways to go before achieving the 2% inflation and the ideal “soft landing” the Fed is striving for.

“It’s not going to be instantaneous. Those things take a while to work through the economy,” Irani said. “But given what the Fed has done, I imagine we’re probably better off than people thought we would have been back in March of 2022.”