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Inflation is crippling rural America and driving some people to consider moving closer to cities in an effort to ease the financial stress, according to the latest analysis from one expert.
Iowa State University professor Dave Peters has been studying the effect of inflation on people in rural communities as part of the school’s Small Town Project. He found that this year alone, expenses for rural Americans had increased by 9.2%, but their earnings only increased by 2.6%.
And Peters has pinpointed where it’s hurting most.
“Mainly, fuel prices, particularly among the farmer and agricultural community,” he said. “They really are worried about the price of gas and diesel.”
Inflation soared to a 40-year high in June, and is affecting all American households. But Peters said travel was one of the main reasons it was hitting harder in rural areas.
“Rural people have to drive long distances for work, for school, for health care, just to get the daily necessities of life like groceries … there is no public transportation,” he said.
His analysis found it costs rural households $2,500 more a year to pay for gasoline than it did two years ago. At the same time, prices are also rising for health insurance, veterinarian care, and fuel to heat homes.
“Most rural homes have to buy tanks of liquefied petroleum or liquefied propane, or they have to get fuel oil,” Peters said. “And those have really risen in costs as well; that’s, I think, something like $1,000 more.”
In response to the June inflation figures, President Joe Biden said tackling the issue was his top priority.
He said the administration would continue to release oil from the strategic petroleum reserves in an effort to bring down gas prices, and that he would “continue to give the Federal Reserve the room it needs to help it combat inflation.”
“Inflation is our most pressing economic challenge … we need to make more progress, more quickly, in getting price increases under control,” he said in a statement.
The Fed is now attempting the delicate task of lowering inflation without driving the economy into recession, and is expected to raise interest rates for the fourth time in five months when it meets later this week.
“The Fed slows the economy down by raising interest rates, which cuts spending,” Princeton economist Alan Blinder told NPR. “If you do too much of that, you’re going to get a recession.”
Peters warned that if prices stayed too high for too long, it could start a dangerous cycle for some rural Americans.
It begins with people dipping into their savings, which Peters said was already happening. Next, they will be forced to use their discretionary money on essential goods; and after that they will go into debt on credit cards.
But what really worries Peters is the idea that some in rural America will then start taking out home equity lines of credit because the value of their homes has increased, especially in the Midwest region. But he warned this strategy could backfire.
“That’s particularly dangerous if home prices fall back down and then they’re left with a mortgage that the value of their home doesn’t cover,” he said.
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This combination of factors was driving some people in rural areas to consider moving closer to cities, Peters said. But it’s complicated.
“There are people that I’ve talked to in Iowa and in Nebraska … that are really trying to do that financial calculation,” he said. “They would love to work and get city wages, but they can’t commute. It’s too expensive with the gas prices. And really, the thing that’s holding them back is the cost of homes.”
“Some people are contemplating moving closer to a city, moving to the suburbs, or moving to a small community 45 minutes from a city. So yeah, it will probably, if it continues, accelerate rural depopulation in parts of the Midwest and Great Plains.”
The audio interview for this story was conducted by Steve Inskeep, produced by Ziad Buchh and edited by Raquel Maria Dillon and Amra Pasic.