Throughout Alaska’s history, the cost of goods has been much higher than the rest of the country. As noted in the July issue of Alaska Economic Trends, during the Klondike Gold Rush a pound of canned butter was $5, or $142 in today’s dollars. While the price of butter has improved, the cost of living, especially in rural Alaska, remains a significant challenge for many. Alaska Economist Neal Fried explains that there are two ways to measure the cost of living. One is to examine the differences between places at a single point in time, and the other is to look at price changes in a single place over time.
Anchorage is the only city in Alaska with its own Consumer Price Index (CPI), and therefore is the only true measure of cost over time. This can be tricky because cost in Anchorage often does not reflect cost in other communities, but the measurement of price change is usually close to that seen in other communities. In relation to price changes, 2014 was a good year. It was the second-smallest increase in the past ten years. Price changes can only be used to compare prices in the same place over time. You cannot compare a Consumer Price Index between cities. Anchorage is the smallest city, of 27, to have its own CPI, and is used as the de facto measure of inflation in Alaska.
It should come as no surprise that Anchorage residents spend the bulk of their monthly budget on housing. Anchorage residents typically spend over 40 percent of their budget on housing and in 2014 the average cost increased by 2.7 percent. Housing price does include the cost of energy and is therefore more volatile. The Anchorage cost is likely much different from communities outside of Southcentral Alaska because many Anchorage residents use natural gas to heat their homes. The price of natural gas is far more complex than the price of heating oil and gasoline, which is used outside of the Southcentral region.
Housing prices in Alaska vary widely depending on the region. Anchorage has the highest average cost for a home at $360,965, while the statewide average is $306,042. Rent for a two-bedroom apartment is the highest in Kodiak, where the average is $1,420 a month. Anchorage is second with $1,331 per month.
Health care does not comprise a large part of the index, but has seen significant increases in the past decade. The cost of health care in Anchorage increased by 3.2 percent in 2014, the largest increase in all categories in the index. Alaska has the highest health insurance premiums in the nation. This is because of higher hospital costs, much higher physician reimbursements, and the higher cost of doing business in Alaska.
Alaska cities are expensive, but not the most expensive in the nation. 11 cities topped Alaska’s most expensive city, Kodiak, in 2014. According to the Council for Community and Economic Research (C2ER), Manhattan and Honolulu are the most expensive cities to live in. Alaska ranked fourth in states with the highest cost of living, behind Hawaii, Connecticut and New York. A few examples of how Alaskan cities compare to others in the nation are:
- National average for a pound of banana $.59, Anchorage $.88, Kodiak $1.26
- National average for a pound of coffee $4.49, Anchorage $5.87, Kodiak $6.09
- National average for a doctor’s visit $105.03, Anchorage $169.40, Fairbanks $173.50
- Cheapest Quarter Pounder Pittsfield, MA $1.99, Anchorage $4.65, Most Expensive Hilo, HI $5.02
The cost of living is a large factor for many when choosing where to live. Anecdotally, Alaska is very expensive, but we can see that it is not the most expensive location in the nation. While Pittsfield, MA may have cheap Quarter Pounders, you can bet that they do not have to share their drive thru with moose and bears as you can in Anchorage.
For more information on the cost of living in Alaska and other cost measures, visit: http://labor.alaska.gov/trends/