Rural Americans aren’t included in inflation figures – and for them, the cost of living may be rising faster
Stephan Weiler, Professor of Economics, Colorado State University;
Tessa Conroy, Economic Development Specialist, University of Wisconsin-Madison
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 studyrural 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.
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.
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.
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.
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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Stephan Weiler receives funding from the US Economic Development Administration. He is affiliated with the Regional Economic Development Institute (REDI@CSU).
Tessa Conroy receives funding from the United States Department of Commerce Economic Development Administration in support of Economic Development Authority University Center (Award No. ED21CHI3030029 and CARES Act award no. ED20CHI30700477). Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the U.S. Department of Commerce Economic Development Administration.
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Rural Americans aren’t included in inflation figures – and for them, the cost of living may be rising faster
fizkes
Photo Credit: fizkes / Shutterstock
As religion and politics become more and more polarizing, some American families can barely get through a big holiday gathering without an argument, clash of personalities, or at the very least, some awkwardness. Yet while some Americans ruthlessly cancel their extended families for opposing viewpoints or outdated beliefs, others are choosing to live under the same roof.
There’s no shortage of reasons for shacking up with relatives—from financial benefits, to caregiving perks, to simple convenience. Whatever the reasons, multigenerational households in the U.S. are continuing to grow and are becoming much more commonplace.
fizkes
Photo Credit: fizkes / Shutterstock
As religion and politics become more and more polarizing, some American families can barely get through a big holiday gathering without an argument, clash of personalities, or at the very least, some awkwardness. Yet while some Americans ruthlessly cancel their extended families for opposing viewpoints or outdated beliefs, others are choosing to live under the same roof.
There’s no shortage of reasons for shacking up with relatives—from financial benefits, to caregiving perks, to simple convenience. Whatever the reasons, multigenerational households in the U.S. are continuing to grow and are becoming much more commonplace.
Rural Americans aren’t included in inflation figures – and for them, the cost of living may be rising faster
Over the past two decades, the number of Americans living in multigenerational households—defined as those households containing three or more generations—has increased significantly, from 17.9 million in 2001, to 27.9 million in 2020. This amounts to an increase from 6.5% of the total American population living in multigenerational households in 2001, to 8.5% in 2020.
Inflation, a limited supply of affordable homes, and rapidly rising childcare costs make living with relatives an attractive, financially-smart decision for an increasing number of American families. For millennial adults who are staying in school longer, postponing or forgoing marriage, and delaying forming their own households, living with parents—both as singles and part of a couple starting a family—can be a natural way to soften the blow of outstanding student debt and lack of accumulated wealth. Parents with their own kids living with grandparents reap the benefits of live-in childcare, and moving in with family can also be a temporary solution for anyone saving for a house or looking for a more sustainable job.
Additionally, as the global average life expectancy continues to grow, older adults require caregiving for longer, and living with adult children is often preferable (and less costly) than hiring full-time care or retiring to a nursing home.
Over the past two decades, the number of Americans living in multigenerational households—defined as those households containing three or more generations—has increased significantly, from 17.9 million in 2001, to 27.9 million in 2020. This amounts to an increase from 6.5% of the total American population living in multigenerational households in 2001, to 8.5% in 2020.
Inflation, a limited supply of affordable homes, and rapidly rising childcare costs make living with relatives an attractive, financially-smart decision for an increasing number of American families. For millennial adults who are staying in school longer, postponing or forgoing marriage, and delaying forming their own households, living with parents—both as singles and part of a couple starting a family—can be a natural way to soften the blow of outstanding student debt and lack of accumulated wealth. Parents with their own kids living with grandparents reap the benefits of live-in childcare, and moving in with family can also be a temporary solution for anyone saving for a house or looking for a more sustainable job.
Additionally, as the global average life expectancy continues to grow, older adults require caregiving for longer, and living with adult children is often preferable (and less costly) than hiring full-time care or retiring to a nursing home.
Rural Americans aren’t included in inflation figures – and for them, the cost of living may be rising faster
Of course, for some racial and ethnic groups, living with relatives and extended family has been a long-established part of their culture. In the United States, Asian, Black, and Hispanic Americans, who have contributed significantly to recent population growth, are more likely to live with extended family, contributing to the increased prevalence of multigenerational households.While multigenerational living is on the rise amongst non-Hispanic White Americans too, this group remains the least likely to live in multigenerational households.
Of course, for some racial and ethnic groups, living with relatives and extended family has been a long-established part of their culture. In the United States, Asian, Black, and Hispanic Americans, who have contributed significantly to recent population growth, are more likely to live with extended family, contributing to the increased prevalence of multigenerational households.While multigenerational living is on the rise amongst non-Hispanic White Americans too, this group remains the least likely to live in multigenerational households.
Rural Americans aren’t included in inflation figures – and for them, the cost of living may be rising faster
Areas with high living costs, large immigrant populations, and housing shortages are abundant with multigenerational homes, which explains why Hawaii (15.7%) and California (12.3%) report the highest percentages of people in multigenerational households. Meanwhile, Midwestern states, with a lower cost of living and more affordable housing prospects, are the least likely to have multiple families living under one roof.
The data referenced below is from the U.S. Census Bureau. To determine the locations with the most multigenerational households, researchers at Filterbuy calculated the percentage of the population living in multigenerational households, defined as those households consisting of three or more generations. In the event of a tie, the location with the greater percentage of households that are multigenerational was ranked higher.
Here are the U.S. metropolitan areas with the most multigenerational households.
Areas with high living costs, large immigrant populations, and housing shortages are abundant with multigenerational homes, which explains why Hawaii (15.7%) and California (12.3%) report the highest percentages of people in multigenerational households. Meanwhile, Midwestern states, with a lower cost of living and more affordable housing prospects, are the least likely to have multiple families living under one roof.
The data referenced below is from the U.S. Census Bureau. To determine the locations with the most multigenerational households, researchers at Filterbuy calculated the percentage of the population living in multigenerational households, defined as those households consisting of three or more generations. In the event of a tie, the location with the greater percentage of households that are multigenerational was ranked higher.
Here are the U.S. metropolitan areas with the most multigenerational households.
You get a job offer with an incredible-sounding salary, but how far will that money go in the place you'd have to live? Before you move, whether for a job or another reason, knowing just how far your income will take you when factoring in the cost of living is helpful.
The Cost of Living Index is calculated based on the price of more than 60 goods and services. The U.S. average is 100, and each place's index is a percentage of the U.S. average. Those below 100 are cheaper than average, and those above 100 are more expensive.
The most expensive states are primarily on the coasts, particularly in the West and Northeast. The cost of living tends to be lower in the Midwest and South.
New Jersey Real Estate Network measured the cost of living in each state during the second quarter of 2022, using data from the Council for Community & Economic Research. The survey measures the cost of living in cities across the U.S. Researchers calculated each state's cost of living using the average of the indices of metro areas and cities in that state.
Monkey Business Images // Shutterstock
You get a job offer with an incredible-sounding salary, but how far will that money go in the place you'd have to live? Before you move, whether for a job or another reason, knowing just how far your income will take you when factoring in the cost of living is helpful.
The Cost of Living Index is calculated based on the price of more than 60 goods and services. The U.S. average is 100, and each place's index is a percentage of the U.S. average. Those below 100 are cheaper than average, and those above 100 are more expensive.
The most expensive states are primarily on the coasts, particularly in the West and Northeast. The cost of living tends to be lower in the Midwest and South.
New Jersey Real Estate Network measured the cost of living in each state during the second quarter of 2022, using data from the Council for Community & Economic Research. The survey measures the cost of living in cities across the U.S. Researchers calculated each state's cost of living using the average of the indices of metro areas and cities in that state.
Many factors go into calculating the cost of living, but housing is a central point. In areas of the country—particularly on the coasts—where land is scarce, but many people want to live, increased demand puts more pressure on housing prices and apartment rents. This demand trickles down to prices for other goods and services because if rents are high, those prices get added to what people pay for goods.
Costs are high in Alaska and Hawaii primarily due to their remote locations, making it more expensive for stores to ship essential goods.
New Jersey Real Estate Network
Many factors go into calculating the cost of living, but housing is a central point. In areas of the country—particularly on the coasts—where land is scarce, but many people want to live, increased demand puts more pressure on housing prices and apartment rents. This demand trickles down to prices for other goods and services because if rents are high, those prices get added to what people pay for goods.
Costs are high in Alaska and Hawaii primarily due to their remote locations, making it more expensive for stores to ship essential goods.
The cost of heating a home in Maine can be an expensive prospect. More than 6 in 10 Mainers use fuel oil, the most costly heating option in the country, and prices can be volatile depending on supply and demand.
Some relief may be coming to low-wage earners, as a new state law ties Maine's minimum wage to the cost of living index and is adjusted annually. By 2023, 147,000 Mainers will get a pay raise from $12.75 to $13.80 per hour.
Joseph Sohm // Shutterstock
Average Cost of Living Index: 116.9
The cost of heating a home in Maine can be an expensive prospect. More than 6 in 10 Mainers use fuel oil, the most costly heating option in the country, and prices can be volatile depending on supply and demand.
Some relief may be coming to low-wage earners, as a new state law ties Maine's minimum wage to the cost of living index and is adjusted annually. By 2023, 147,000 Mainers will get a pay raise from $12.75 to $13.80 per hour.
Apartment rents in New Jersey have spiked, particularly in Jersey City. Many New Yorkers have relocated across the Hudson River to this city for more space with the same urban feel and relative accessibility to New York. Other parts of the state have cheaper housing, but overall, housing costs are considerably higher than the U.S. average.
FotosForTheFuture // Shutterstock
Average Cost of Living Index: 118.6
Apartment rents in New Jersey have spiked, particularly in Jersey City. Many New Yorkers have relocated across the Hudson River to this city for more space with the same urban feel and relative accessibility to New York. Other parts of the state have cheaper housing, but overall, housing costs are considerably higher than the U.S. average.
High-paying jobs in Oregon also come with higher costs. Housing prices have increased 30.5% from 2010 to 2020 due to high demand and low supply, per a 2021 report from Filterbuy.
Gas prices are also higher in Oregon than in other states due to a lack of refining capacity. Oregon also prohibits self-serve gas pumping, so residents must pay for the costs associated with employing gas station attendants.
Bob Pool // Shutterstock
Average Cost of Living Index: 120.6
High-paying jobs in Oregon also come with higher costs. Housing prices have increased 30.5% from 2010 to 2020 due to high demand and low supply, per a 2021 report from Filterbuy.
Gas prices are also higher in Oregon than in other states due to a lack of refining capacity. Oregon also prohibits self-serve gas pumping, so residents must pay for the costs associated with employing gas station attendants.
Car insurance in Maryland is much higher than national averages because the state mandates high minimum liability insurance, personal injury protection, and uninsured motorist coverage. Drivers in Maryland pay more—about $2,120 annually—for minimum coverage than the national average for full coverage—about $2,000 annually. Full coverage in Maryland costs more than two times the national average at about $5,000 per year.
The price of insurance contributes to Maryland's high cost of living. According to Filterbuy, the Baltimore metro area's housing costs increased 22.3% from 2010 to 2020.
Jon Bilous // Shutterstock
Average Cost of Living Index: 125.1
Car insurance in Maryland is much higher than national averages because the state mandates high minimum liability insurance, personal injury protection, and uninsured motorist coverage. Drivers in Maryland pay more—about $2,120 annually—for minimum coverage than the national average for full coverage—about $2,000 annually. Full coverage in Maryland costs more than two times the national average at about $5,000 per year.
The price of insurance contributes to Maryland's high cost of living. According to Filterbuy, the Baltimore metro area's housing costs increased 22.3% from 2010 to 2020.
The country's largest state by area is also one of the least populated, with many towns and cities that are difficult to access. Most basic goods must be shipped long distances to get to consumers, which drives up prices. Kodiak and Juneau rank #1 and #3 in the country for highest grocery prices; the cost of living indices in this category are 154.4 and 137.8, respectively. High energy prices also drive up the cost of living.
mffoto // Shutterstock
Average Cost of Living Index: 126.7
The country's largest state by area is also one of the least populated, with many towns and cities that are difficult to access. Most basic goods must be shipped long distances to get to consumers, which drives up prices. Kodiak and Juneau rank #1 and #3 in the country for highest grocery prices; the cost of living indices in this category are 154.4 and 137.8, respectively. High energy prices also drive up the cost of living.
At 12.75%, New Yorkers have the country's highest overall tax burden when combining property tax, income tax, and sales and excise tax. Even for those who don't own property, New York's income tax is the highest in the U.S., at 4.9%.
New York City drives up the cost of living in the state. Manhattan is the most expensive place in the country, thanks to a fixed amount of space to build and the high demand to live there.
Thiago Leite // Shutterstock
Average Cost of Living Index: 136.8
At 12.75%, New Yorkers have the country's highest overall tax burden when combining property tax, income tax, and sales and excise tax. Even for those who don't own property, New York's income tax is the highest in the U.S., at 4.9%.
New York City drives up the cost of living in the state. Manhattan is the most expensive place in the country, thanks to a fixed amount of space to build and the high demand to live there.
California has notoriously high prices for housing, gas, utilities, and food. Well-paid workers, particularly in the tech sector, have increased demand in a housing market that doesn't have enough units to support it. Around 40% of homeowners and 50% of renters spend more than 30% of their income on housing costs.
California's gas prices are also higher than elsewhere due to issues with supply, more state regulations, and high taxes, which at 53.9 cents per gallon, is second only to Pennsylvania.
Dancestrokes // Shutterstock
Average Cost of Living Index: 139.8
California has notoriously high prices for housing, gas, utilities, and food. Well-paid workers, particularly in the tech sector, have increased demand in a housing market that doesn't have enough units to support it. Around 40% of homeowners and 50% of renters spend more than 30% of their income on housing costs.
California's gas prices are also higher than elsewhere due to issues with supply, more state regulations, and high taxes, which at 53.9 cents per gallon, is second only to Pennsylvania.
Housing prices throughout the state continue to be an issue for the state's affordability ranking. From 2010 to 2021, median home prices rose by almost 8% to $510,000, putting once-affordable cities and suburbs out of reach for many workers.
Supply issues with heating oil and diesel fuel also further increase utility costs. Residents of Massachusetts also have the fourth-highest grocery bills in the country, spending an average of $117 per week, according to a report from Lensa.
Sergey Novikov // Shutterstock
Average Cost of Living Index: 147.9
Housing prices throughout the state continue to be an issue for the state's affordability ranking. From 2010 to 2021, median home prices rose by almost 8% to $510,000, putting once-affordable cities and suburbs out of reach for many workers.
Supply issues with heating oil and diesel fuel also further increase utility costs. Residents of Massachusetts also have the fourth-highest grocery bills in the country, spending an average of $117 per week, according to a report from Lensa.
Washington D.C. has higher state and local tax collections per capita than any other state. In 2019, the most recent year available, it collected $12,130 per capita, while New York, the next highest state, collected $10,213, according to a 2022 report from the Tax Foundation.
Washington D.C. has been short on housing units for years, according to a 2022 report from Up For Growth, causing prices to soar. This shortage is causing a prevalence of "missing households," where unrelated people live with each other to afford a place to live.
Orhan Cam // Shutterstock
Average Cost of Living Index: 154.5
Washington D.C. has higher state and local tax collections per capita than any other state. In 2019, the most recent year available, it collected $12,130 per capita, while New York, the next highest state, collected $10,213, according to a 2022 report from the Tax Foundation.
Washington D.C. has been short on housing units for years, according to a 2022 report from Up For Growth, causing prices to soar. This shortage is causing a prevalence of "missing households," where unrelated people live with each other to afford a place to live.
Hawaii is the most expensive state in the nation due to its location. Hawaii cannot produce everything it needs, so it must bring in most goods and services, which significantly adds to costs for everyday goods like groceries.
Hawaii residents also pay far more for electricity than other states because utilities use a lot of petroleum to generate electricity. In June 2022, it cost residents an average of 44.09 cents per kilowatt hour compared to the U.S. average of 15.42 cents, according to the Energy Information Administration.
This story originally appeared on New Jersey Real Estate Network and was produced and distributed in partnership with Stacker Studio.
Leigh Trail // Shutterstock
Average Cost of Living Index: 189.9
Hawaii is the most expensive state in the nation due to its location. Hawaii cannot produce everything it needs, so it must bring in most goods and services, which significantly adds to costs for everyday goods like groceries.
Hawaii residents also pay far more for electricity than other states because utilities use a lot of petroleum to generate electricity. In June 2022, it cost residents an average of 44.09 cents per kilowatt hour compared to the U.S. average of 15.42 cents, according to the Energy Information Administration.
This story originally appeared on New Jersey Real Estate Network and was produced and distributed in partnership with Stacker Studio.
Calculating the cost of living in the country. Ariel Skelley/Getty Images
Monkey Business Images // Shutterstock