Rural Americans aren't included in inflation figures – and for them, the cost of living may be rising faster
Published in News & Features
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.
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.