When the Federal Reserve meets to set interest rates at the end of January 2023, it will be guided by one key piece of data: US inflation. The problem is, that statistic ignores a good chunk of the country: rural America.
Inflation is currently hovering at 6.5%, still high, although slightly lower than at the end of 2022.
read more: US inflation and consumer spending ease in December
Overall inflation, along with core inflation, which excludes volatile food and energy costs, is seen as key to determining whether the economy is overheating rapidly, prompting the Fed to raise rates by a significant 0.75%. I did it several times. The hope is that raising the benchmark interest rate, for example by increasing the cost of taking out a bank loan or mortgage, will help inflation return to the Fed’s target of around 2%.
But the main indicator of inflation, the Consumer Price Index, is put together by looking at changes in prices paid, especially by urban Americans, for a range of baskets of goods. People living in rural America were not surveyed.
As an economist who studies rural America, I see this as a problem. People living outside American cities make up 14% of the American population, or about 46 million people. They are likely to face different economic pressures and have different spending habits than urbanites.
The fact that the Bureau of Labor Statistics only looks at urban populations for the Consumer Price Index makes rural inflation much more difficult to assess and may even mask the rural-urban inflation gap.
To assess whether such gaps exist, we need to look to other price data and qualitative analysis to build a complete picture of price increases in non-urban areas. This was done by focusing on four key commodities and services that could have significantly different price effects in rural and urban areas. What we find is that rural areas may actually suffer from inflation more than urban areas, creating an underestimated gap.
Cost of driving a car in the country
Rising costs related to automobiles and petrol could contribute to an urban-rural inflation gap, severely impacting the discretionary income of non-urban families, according to a 2022 report. .
This is likely related to the substantial differences in vehicle purchases, ownership, and commute times between urban and rural Americans.
While owning a car is essential to rural life and essential for getting from place to place, city dwellers can more easily choose cheaper options such as public transport, walking or biking. It has several effects on costs in rural areas.
Rural residents are forced to spend more on car purchases. They are also more likely to own a used car. In the first year of the COVID-19 pandemic, a shortage of new cars due to supply he chain constraints led to a significant rise in used car prices. These price increases may have disproportionately affected remote areas.
read more: Gasoline prices have fallen but still strain some drivers
Rural Americans tend to drive farther as part of their daily activities. Due to the increasing degree of isolation, the rural worker often has longer commutes, has to drive far to raise his children, and has to travel 50 miles (80 km) to work. The proportion of migrant workers has increased over the last few years. As of 2018, in Midwestern states, nearly 25% of workers in the most remote counties traveled her 50 miles (80 kilometers) compared to more than 10% of her workers in urban areas. I commute more.
Long trips mean your car or truck wears out faster. As a result, rural residents will have to spend more money on repairing or replacing their cars and trucks, hurting them even more when auto inflation soars.
While fuel costs may fluctuate, periods of high energy prices like the US experienced throughout 2022 could disproportionately impact rural residents given their driving needs and extended distances. There is a nature. Anecdotal evidence also suggests that gas prices may be higher in rural areas than in urban areas.
Rising costs of eating at home and moving groceries
As meals away from home become more expensive, many households may choose to eat out more often to cut costs. I spend more money on food.
This means less flexibility as food costs rise, especially when it comes to food essentials for home preparation. (11.8% vs. 8.3%), making eating at home relatively expensive.
Rural Americans are also driving more often to buy groceries. The median rural household travels he 3.11 miles (5 km) to get to the nearest grocery store, while the urban dweller her 0.69 miles (1.1 km). This makes it more expensive to feed a rural family and again increases vehicle depreciation.
Grocery stores in rural areas are also dwindling in number, replaced by 100-yen shops. As a result, fresh food in particular can be scarce and expensive, leading to more restricted and unhealthy diets. Costs rise faster because rural residents tend to eat more at home.
The cost of aging or becoming ill outside the city
Demographically, rural counties tend to be older. This is partly the effect of young residents moving to cities and college towns for work and educational reasons. Older people also spend more money on health insurance and medical services. With the overall cost of health services also rising, these seniors will spend more on critical doctor visits.
Again when it comes to health, higher gas prices will disproportionately hit rural communities as they will need to travel even more to access primary health care. On average, a rural American travels 5 miles (8 km) more to get to the nearest hospital than a city dweller. And experts may be hundreds of miles away.
Your home will cost less, but heating and cooling can be expensive
When it comes to inflation gaps, rural Americans aren’t always the losers. His one item in rural areas that favors them is housing.
Outside of cities, housing costs are generally lower because demand is more limited. Rural Americans own more homes than city dwellers. In general, during a time when housing costs are rising, owning a home is cheaper than renting, especially since home prices skyrocketed in 2021, so this could help protect homeowners from inflation. increase.
But even rural American renters are spending proportionately less. These cost advantages favor rural residents, as housing accounts for about one-third of the consumer price index.
However, poor quality housing leaves rural homeowners and renters vulnerable to higher heating and cooling costs, as well as additional maintenance costs.
Inflation: a disproportionate burden
There are no definitive, official quantitative data showing the urban-rural inflation gap, but an examination of rural living and consumption habits suggests that rural Americans are suffering more as the cost of living rises. will be
In fact, rural inflation can be more detrimental than urban inflation, and price increases are likely to last longer than in cities.
Stephan Weiler is Professor of Economics at Colorado State University. Tessa Conroy is an economic development specialist at the University of Wisconsin-Madison.
This article is republished from The Conversation under a Creative Commons license. Please read the original article.
