By Stephan Weiler, the William E. Morgan Endowed Chair as Professor of Economics at Colorado State University, and Tessa Conroy, an economic development specialist at the University of Wisconsin-Madison /Extension. Originally published at The Conversation.
When the Federal Reserve convenes at the end of January 2023 to set interest rates, it will be guided by one key bit of data: the U.S. inflation rate. The problem is, that stat ignores a sizable chunk of the country – rural America.
Currently sitting at 6.5%, the rate of inflation is still high, even though it has fallen back slightly from the end of 2022.
The overall inflation rate, along with core inflation – which strips out highly volatile food and energy costs – is seen as key to knowing whether the economy is heating up too fast, and guided the Fed as it imposed several large 0.75 percentage point interest rate increases in 2022. The hope is that raising the benchmark rate, which in turn increases the costs of taking out a bank loan or mortgage, for example, will help reduce inflation back to the Fed target of around 2%.
But the main indicator of inflation, the consumer price index, is compiled by looking at the changes in price specifically urban Americans pay for a set basket of goods. Those living in rural America are not surveyed.
As economists who study rural America, we believe this poses a problem: People living outside America’s cities represent 14% of the U.S. population, or around 46 million people. They are likely to face different financial pressures and have different consumption habits than urbanites.
The fact that the Bureau of Labor Statistics surveys only urban populations for the consumer price index makes assessing rural inflation much more difficult – it may even be masking a rural-urban inflation gap.
To assess if such a gap exists, one needs to turn to other pricing data and qualitative analyses to build a picture of price growth in nonurban areas. We did this by focusing on four critical goods and services in which rural and urban price effects may be significantly different. What we found was rural areas may indeed be suffering more from inflation than urban areas, creating an underappreciated gap.
1. The cost of running a car in the country
Higher costs related to cars and gas can contribute to a urban-rural inflation gap, severely eating into any discretionary income for families outside urban areas, a 2022 report found.
This is likely related to there being considerable differences in vehicle purchases, ownership and lengths of commutes between urban and rural Americans.
Car ownership is integral to rural life, essential for getting from place to place, whereas urban residents can more easily choose cheaper options like public transit, walking or bicycling. This has several implications for expenses in rural areas.
Rural residents spend more on car purchases out of necessity. They are also more likely to own a used car. During the first year of the COVID-19 pandemic, there was a huge increase in used car prices as a result of a lack of new vehicles due to supply chain constraints. These price increases likely affected remote areas disproportionately.
Rural Americans tend to drive farther as part of their day-to-day activities. Because of greater levels of isolation, rural workers are often required to make longer commutes and drive farther for child care, with the proportion of those traveling 50 miles (80 kilometers) or more for work having increased over the past few years. In upper Midwest states as of 2018, nearly 25% of workers in the most remote rural counties commute 50 miles (80 kilometers) or more, compared with just over 10% or workers in urban counties.
Longer journeys mean cars and trucks will wear out more quickly. As a result, rural residents have to devote more money to repairing and replacing cars and trucks – so any jump in automotive inflation will hit them harder.
Though fuel costs can be volatile, periods of high energy prices – such as the one the U.S. experienced through much of 2022 – are likely to disproportionately affect rural residents given the necessity and greater distances of driving. Anecdotal evidence also suggests gas prices can be higher in rural communities than in urban areas.
2. Rising cost of eating at home – and traveling for groceries
As eating away from home becomes more expensive, many households may choose to eat in more often to cut costs. But rural residents already spend a larger amount on eating at home – likely due in part to the slimmer choices available for eating out.
This means they have less flexibility as food costs rise, particularly when it comes to essential grocery items for home preparation. And with the annual inflation of the price of groceries outpacing the cost eating out – 11.8% versus 8.3% – dining at home becomes comparably more expensive.
Rural Americans also do more driving to get groceries – the median rural household travels 3.11 miles (5 kilometers) to go to the nearest grocery store, compared with 0.69 miles (1.1 kilometers) for city dwellers. This creates higher costs to feed a rural family and again more vehicle depreciation.
Rural grocery stores are also dwindling in number, with dollar stores taking their place. As a result, fresh food in particular can be scarce and expensive, which leads to a more limited and unhealthy diet. And with food-at-home prices rising faster than prices at restaurants, the tendency of rural residents to eat more at home will see their costs rising faster.
3. The cost of growing old and ill outside cities
Demographically, rural counties trend older – part of the effect of younger residents migrating to cities and college towns for either work or educational reasons. And older people spend more on health insurance and medical services. Medical services overall have been rising in cost too, so those older populations will be spending more for vital doctors visits.
Again with health, any increase in gas prices will disproportionately hit rural communities more because of the extra travel needed to get even primary care. On average, rural Americans travel 5 more miles (8 kilometers) to get to the nearest hospital than those living in cities. And specialists may be hundreds of miles away.
4. Cheaper home costs, but heating and cooling can be expensive
Rural Americans aren’t always the losers when it comes to the inflation gap. One item in rural areas that favors them is housing.
Outside cities, housing costs are generally lower, because of more limited demand. More rural Americans own their homes than city dwellers. Since owning a home is generally cheaper than renting during a time of rising housing costs, this helps insulate homeowners from inflation, especially as housing prices soared in 2021.
But even renters in rural America spend proportionately less. With housing making up around a third of the consumer price index, these cost advantages work in favor of rural residents.
However, poorer-quality housing leaves rural homeowners and renters vulnerable to rising heating and cooling costs, as well as additional maintenance costs.
Inflation – a disproportionate burden
While there is no conclusive official quantitative data that shows an urban-rural inflation gap, a review of rural life and consumption habits suggests that rural Americans suffer more as the cost of living goes up.
Indeed, rural inflation may be more pernicious than urban inflation, with price increases likely lingering longer than in cities.
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I think this touches on something that isn’t really discussed enough. There is an implied view in many writings that rural dwellers will do better in a world of climate change as they can grow more food and hunt or whatever. But in truth, rural and low density exurb living is far more energy intensive and energy dependent than dense urban living (yes, I know there are people living happily off-grid and self-reliant, but they are a tiny minority and in their own way dependent on services outside their control, like medical aid).
In a world of strained supply chains and services (power/transport/healthcare/food supply etc), it is rural areas that will get cut off first. It will always make more sense to focus scarce resources on core cities.
I dont think many cities will be able to last very long if they cut off the rural areas around them that provide them with food and energy. I suppose if things get bad slowly enough, the logistics might be able to be tweaked (eg vertical farming), but as things stand now, I’d much rather be rural than urban in a SHTF situation
Where will we get our meth?
We don’t want The Chef wandering around the burbs blowing up motel rooms, we want that pushed out into the hinterlands.
Rural America seems to be almost its own country in some ways. Sure, there is always a rural versus urban antagonism which we saw result in the Yellow Vest movement when taxes were enacted that would disproportionally affect rural dwellers in France. But in America there is getting to be a political slant to it. The 2016 US Presidential election map showed America to be an ocean of red with small urban islands of blue. And there is not a lot of sympathy for those living in rural America by those in blue areas. Just today I read an article by Paul Krugman who said that rural Americans get heaps of subsidies, lots of federal programs that benefit them, that they pay less tax because they are so poor (lucky them) and other such goodies. But you can see fear here. Because they do it so tough, they are swinging to the right which makes them a threat to the Democrats. He talks about ‘economic forces that have been hollowing out rural America’ but never gets around to talking about them or who benefited from them. And unfortunately as all those rural voters still have the right to vote, that they cannot be fobbed off and ignored like they should be by all good thinking people.
https://www.nytimes.com/2023/01/26/opinion/rural-voters-economy.html
I now look back at the time I looked forward to reading Krugman with such shame. Once you figure him out It is like knowing how a magic trick is done, you cannot ignore the misdirection any more. Sure there are, and were, times he is just wrong. Still the insidious aspect is when he puts forth a situation with enough reality and then twist it just enough to make what he is saying appear to be logical and sensible. And in this case he continues the trope that people who do not live in urban areas just don’t understand how they have been helped by x policies all the while fueling also hard hit urbanites with how much is being spent on those ungrateful rural dwellers. He is a very adept practitioner of pointing the finger at the other.
God forbid we, voters, recognize that almost everyone has been hurt by an economy. that it has been relentlessly shaped to benefit a few at the expense of every one else. Most groups have been given some crumb of support although never enough or in the form most needed, but that does the job of antagonizing other groups and focusing them on each other rather than say the Bill Gates of the world, people that have both influenced the detrimental policies and advanced the situation to their advantage.
The last thing power wants in this country is for the people to understand that there is no green grass anywhere. They cannot be allowed to realize that the things that cost and keep people down and wanting may not be the same, but the forces behind the problems are behind them everywhere
Ah, you’ve hit on the crux of the problem. It’s a binary choice- yes or no with dropping a ballot. What voting doesn’t accomplish is directing policymakers or creating incentives to have good policy. Both political parties are quite invested in the status quo, so either voters need to support a third option or revolt against the existing parties and their current incentives. If not, apathy and cynicism will define politics for the future generation. As mere mortals cannot hope to change the institutions and structures that define modern politics. I don’t see anything on the horizon that can actually improve the poor to middle class, absent radical changes in tax policy, that would materially improve lived conditions for rural folks in the next year or two. Maybe peace will break out inUkraine and Russo conflict and gas prices will plummet. Here’s hoping for Montana and the Midwest.
Where are the real news analysts? They should be all over this binary looks-like-a-sport reporting and not simply counting, telling, counting, telling, counting, telling as one side gains points.
The subsidy thing really gets my goat, and even my liberal sister, who lives in a metro area, will throw this in my face at times (Maybe she reads Krugman-lol). I think it is important to realize that there are many types of subsidies, of which currency is only one. Rural areas subsidize suburban and urban areas with many things- under-priced food, energy, basic materials, labor, and lets not forget where suburban/urban areas dispose of their waste. If one really wants to know who is doing the bulk of the subsidizing, all you have to do is perform a simple experiment: Ask yourself which of two given areas would survive more effectively if all transfers were walled off between those two areas. Devote just a little effort to that, and the truth will be revealed. Krugman is right about the other thing. The ownership class have strip-mined rural areas, basically turning them into a resource colony, and then encouraged urban/suburban people to spit in the faces of those that supplied the means for their lifestyles. It’s always been the American way, it seems. We’ve done this to other regions around the world for over 2 centuries, and now we are doing it to our own.
Please don’t forget that many of those subsidies are hidden means to give tax breaks or other monies to the wealthy. (There are similar items in breaks given for urban areas.) For example the people whose second or third domicile is labeled as a farm, but the loopholes mean they get full access to programs that were supposedly designed to support real family farms as far as the public was concerned. It is amazing how in practice so much really works best for posers or corporate farms.
Look I know I am dependent on rural areas. I also know that Trump was not and is not the problem despite being a despicable human, as are the Clintons, the Obamas, the Bushes, and the Bidens. Although a caveat on that is that all the other ex and current Presidents really do qualify as big parts of the problem, Trump actually slowed much of it down. But I also know we are being directed to point fingers at each other, not at the real problems and waste time doing so. Rural areas deserve real support, so do urban areas. The masters of the universe, not so much.
Trump slowed it down? I have a quibble with that.
Trump, like most in office, was an enabler to the larger machination that is the corporate-gubmint nation-state grift. He just peeled more off for himself, in broad daylight. At least Biden was a bit more subtle.
It is not unique to the USA. It really is western ‘capitalism’. Every bit as corrupt, just a different model of control and suppression, as China.
Until ‘we’ get together, No Lives Matter on this Big Blue Marble. Not a betting man, but I think the odds stink…
The metropole has always exploited the periphery. Apologists like Krugman are almost as disgusting as the revolving door of creeps that staff “The Economist.”Almost …
Gee willikers, judging by the comments above and below I think we get to see firsthand the divisive results of wedge issue politics, urban versus rural being yet another item on the list. Half a dozen of this, half a dozen of that. Whatever. As several commenters mentioned in different words, we’re all in it together. And as soon as we realize that then it’s all over for the Krugman’s of the world.
To wit, my small, mountain community is about as politically eccelctic as they come (overall leaning blue), from Proud Boys to communists. But when we get 35″ of rain in the space of two weeks and the mountain comes down, both of ’em, shouder to shoulder, are gonna be clearing the same boulders from the same road.
Wasn’t he pointing to the farm subsidies as a major portion of the rural support from the Feds?
The urban rural divide in USA has likely been there since the days of the (not so) wild west.
I once read about how Wild Bill Hickok would late in life play himself on stage in New York, as a kind of variety theater for the fine upper crust of USA. Who he once shocked by loading his stage gun with an actual bullet and shooting the overhead stage lighting.
Basically all the people knew about the inland areas came from newspaper articles and dime novels.
And that attitude seem to have carried forward to the modern day. Just look at all the talk about “flyover country” and similar.
Do rural or urban workers work at the facilities that manufacture 155mm artillery rounds? Where do most military recruits come from?
Nice Neo-con/Neo-liberal plans you have there. It would be shame if something happened to them.
Munition manufacturing locations in the US:
Action Manufacturing (Bristol, PA)
American Ordnance (Middletown, IA)
ARMTEC (Coachella, CA)
Bluegrass Army Depot (Lexington, KY)
Chemring Ordnance (Perry, FL)
Crane Army Ammunition Activity (Crane, IN)
Day & Zimmermann-Lone Star (Texarkana, TX)
General Dynamics Ordnance and Tactical Systems (Fort Lauderdale, FL; Scranton, PA; Canada)
Holston Army Ammunition Plant (Kingsport, TN)
McAlester Army Ammunition Plant (McAlester, OK)
Medico Industries (Wilkes-Barre, PA)
Northrop Grumman Innovation Systems (Minneapolis, MN)
Pine Bluff Arsenal (Pine Bluff, AR)
Talked to a bus driver recently who our city pays around $25/hr. Unfortunately that isn’t nearly enough to live here with the skyrocketing cost of housing so he commutes from a more rural area 45 minutes away. The cost of gas just to get to and from work is a significant chunk of that person’s paycheck – when gas gets over $4/gallon, it’s likely 10-15% of the guy’s take home pay. It shouldn’t be a surprise that our city is facing a huge shortage of bus drivers right now, both for schools and public transportation.
I think David Harvey made a mention of coming back to New York after a conference via and overnight flight, and the early morning subway was packed with bleary eyed people heading into the city. This in order to fire up the shops and ready the offices before the PMCs rose and started their day.
These were all people that commuted in from the most distant suburbs every day in order to be there in time for business hours to commence, because that was the only place they could afford living on their minimum wage.
On a different tack, i seem to recall reading an interview of a lady that grew up in an small apartment above one of the biggest libraries in New York. They lived there because her dad was employed as the caretaker/janitor of the building.
I live in rural Ohio, a solid red county, but have some PMC blue as well. Trust me, the PMC blue hate the red people because they smell like Trumpers. Their lives revolve around hating Trumpers and the GOP in general. If you are not one of them you are a stupid red neck hick, period. They love turning their arrogant nose up at the rest of the population.
Funny, though, starting in the spring and going through the end of summer, we have farm markets on the main street of town so all the stupid red neck hicks can sell fresh produce, jelly’s, jams, and all sorts of home made/farm produced products. This is farm country and these stupid red neck hicks grow their food, raise the animals that get processed into food, and milk the cows that provide their milk.
When the $hit hits the fan, these stupid red neck hicks will probably be just fine, since they have the food and all. People like Krugman might have a problem, living in that big city when the store shelves go empty.
Krugman, and his ilk are nothing more than ivory tower a$$holes who look down on so many of us, while lecturing us on how to vote, among other things.
Come visit Cornhole Pauly, see what it’s like to bail hay, milk a cow, shovel pig poop, and drive a plow for 16 hours a day. And be careful what you say about the stupid red neck hicks – these are proud people – they might get offended, and you might find yourself getting a ride in the back of a honey wagon (a tractor pulled wagon full of animal poop used for spreading the “fertilizer.”
Want to clean up Pauly? There’s a pond right over there, but watch out for the bull, he’s got a temper.
Said rednecks will be fine, for a while. Modern farming etc is heavily reliant of petrochemicals.
Moving away form those will mean smaller fields, longer hours, lower yields.
Depends on the farm.
Our (very) small farm uses relatively modest amounts of petrochemicals for running small machinery (lawn tractor, chain saw, log splitter, etc.), but none in the form of fertilizers, if that’s what you’re implying.
Most of what we do is done by hand, so the produce beds and animal housing/pastures have been organized for ease of working without the help of machinery. I move around a great deal of manure in wheelbarrows every year and I’ve got the arm muscles to show for it. :)
Sometimes I like to mention to tourists from large eastern cities that if they’re interested in a Real Vermont Experience, they can come over to our small farm and help me muck the barn.
No takers so far.
We have that issue here in the Green Mountain State, famously ‘blue’, but with the very same urban/rural divide. The rural people who make their living with physical work are a heck of a lot more conservative than those that don’t. Add to that the native Vermonter/flatlander divide and it becomes somewhat complicated. The people in charge in Montpelier are mostly from the non-physical-work group and it shows in their laws and in the way they throw our tax money around.
I live in a semi-urban pocket of a huge rural area. Life in the sticks is tough. Everything has to be obtained from a Walmart 30+ miles away or a dollar store. What does it say about rural America when the prime commercial activity in small towns is dollar stores?
The little blue “urban” pockets like mine aren’t much better. My city is skewed by having become a vacation and retirement destination but the numbers just don’t work anymore. A house here doesn’t come at <$200k but the median income is like $30k. We’re told that the cost of living is lower, but it isn’t. Gas is more expensive, groceries are more expensive, etc. relative to the major population centers in the state. But in those places the low wage jobs like fast food can pay as high as $18/hr while here the same jobs are just starting to push $13/hr. Which means that they’re now exceeding a lot of the staff university jobs which are billed as such a significant contributor to our local economy. And we’re the place everyone from surrounding areas comes to go to Walmart.
It feels like any economic downturn will absolutely crush the rural and semi-rural middle and lower classes.
FWIW, I live in what might be the most isolate small city in the Lower 48: Billings, Montana, which contains less than 150,000 people, and is surrounded by very empty land in every direction. There is no larger city within 450 miles; Regina, Saskatchewan is the closest at 470, followed by Calgary at 540 and Denver and Salt Lake at 550. Billings services the rural world — repairs tractors, sells saddles, answers its medical emergencies. It’s as rural in culture, politics, and outlook as an American city can be. People leave their car engines running with the keys in the ignition while they go indoors to shop. They ask strangers from the East, in innocence and friendship, what church they attend back home.
EVs are near unusable away from the interstates and unaffordable in town; pro-EV talk sounds like it comes from crazies on drugs. The regional power company has just invested heavily in additional coal power, bucking the national trend, because coal is mined nearby. We get bears in our suburban back yards and grizzly attacks in the nearby mountains, and have the highest rate of gun ownership in the U.S., but mass shootings are almost nonexistent. Despite lack of vaccines and masking, the Covid rate is no higher than elsewhere, because we are spread thinly.
You can’t understand how different it is, and how different the world looks here, if you’ve never lived here.
Rural people, even as near as Roundup MT, 50 miles north of us, get their meat by hunting and their veggies from garden plots. The result is that their town has no grocery, and they buy what food they don’t grow or kill (snacks and desserts, with some fruit) at the local convenience store. The NY *Times*, oblivious as always, blamed Roundup’s reliance on the convenience store as evidence of dreadful eating habits, and made it a headline a few years back. (Rural people too dumb to eat healthy!) This article makes a parallel wrong assumption, fretting about the impact of high grocery prices on rural people. The truth is that urbanites can’t measure the situation rightly using their metrics. Most rural Montanans eat better than a lot of urbanites, and pay for their food at the gun store, the gas pump, and farming-and-ranching supply stores.
Yes, gas and grocery prices stay higher here than the national average. A mere apartment in town is beyond the means of the lower middle class. Internet is a luxury in the countryside. Restaurants are scarce. And five-dollar gas hit a lot of service-economy businesses hard. It’s bad. But those are concerns that loom bigger in the minds of millionaire transplants in gated communities, because they know only how to buy what they need. Most everyone else here learned from childhood how to build their own houses, fix their own cars and plumbing, and get by. Low consumer prices are very important, but still just one leg of the survival stool. When a bad economy puts prices out of reach, a lot of people just figure they’re going to wear their clothes longer, have to stick to two-hundred-dollar cars, fix their own farm equipment illegally, and give up doctor visits and trips to town. Better that than give up the Montana life!
And I think, if you read that carefully, it says that the bigger problems may be somewhere other than high consumer prices. Fairer arrangements for marketing farm products, light rail along the minor highways, meaningful farm implement right-to-repair laws, better rural health arrangements, and better access to media that are honest about climate change — give us that, and I think we can roll with the high gas and egg prices. My humble opinion.
deregulation, privatization, free trade, tax breaks for rich parasites, etc., those policies devastated rural america, as well as the rest of the country. rural america since 1976 has been viewed as the worst of the deplorable, considered low life forms.
carters assault on subsidies in transportation(the deregulation of the airlines and phone system)helped to start the assault on rural america.
but it was bill clinton that really set this mess into motion, and the best way to cover this up, is to merely ignore it, or offer a fake remedy, high speed internet(faster porn downloads).
https://www.tandfonline.com/doi/full/10.1080/26883597.2020.1801331
“Manufacturing jobs have traditionally provided higher wages and better benefits than other types of jobs available in rural areas (Green & Sanchez, 2007). The manufacturing sector usually has strong linkages with local suppliers and service firms, and thus tends to have a large multiplier effect in the region (Cohen & Zysman, 1987). Manufacturing jobs in rural America typically required little job training or work experience, and young workers in many cases could take the jobs immediately out of high school. Finally, manufacturing jobs in rural areas have been critical to the survival of family labor farms because they are an important source of off-farm income (Browne, Skees, Swanson, Thompson, & Unnevehr, 1992).
Since 2000, however, the percentage of jobs in the manufacturing sector has declined from 25% to less than 10%. The Midwest has been hit especially hard–manufacturing employment dropped from 35% to 15% of the jobs in the region. Job losses in the manufacturing sector accelerated during the last two recessions.”
Thank you for this. You have identified a specific example of the more general problem of aggregated statistics — they hide much more than they reveal.
Some prices are significantly higher in core urban areas versus the suburbs, such as housing and gas prices. Only very remote rural areas might have higher gas prices. Sometimes food prices will vary too – often depending on whether or not there is a nearby Walmart or Costco, versus a Whole Foods, or something inbetween like a Safeway.
My observation was that, in 2022, gas prices were higher in California (up to $6+/gallon) than elsewhere, and that this was a far greater difference than the differences between urban, suburban and rural. Prices were higher than the national average here in Billings, Montana (up to $5.40/gallon), even though we are an actual city on an intersection of east-west and north-south cross-country interstates. Prices were lower than ours in the remote sandhills of western Nebraska. I’m not an expert myself. But local oil industry professionals I talked with said that these differences were due to relative distance from the end-point refineries making the gasoline that met the final gallons of local demand; the distance was greater in suburban California than in the Nebraska sandhills.