Inflation hits poor and rural Americans hardest

Last week, I recounted the Biden administration’s shifting stance on inflation, from ‘non-existent’ through ‘good thing’ to ‘conspiracy by evil businesses.’

The pivot away from celebrating inflation as sign of economic health is easy to understand. Last week, CBS reported:

Inflation is inflicting financial pain on millions of U.S. households, with almost half reporting that higher prices are causing some form of hardship, according to a new survey from Gallup. 

The study found that 45% of American families said they experienced either severe or moderate hardship due to inflation. Lower-income households were more likely to say that rising prices are causing financial pain, with 7 in 10 families with annual income of less than $40,000 saying they are experiencing hardship. By comparison, roughly a third of families earning more than $100,000 said the same. 

Inflation accelerated in October, surging to three-decade high of 6.2%. Such rapid price hikes are denting household budgets, following almost a decade when inflation rose only 1% to 2% annually. Many items with the strongest price hikes are essentials that Americans can’t skip or postpone purchasing, such as fuel, heating oil and food. 

Business Insider reported that, of the 45 percent who said they experienced either severe or moderate hardship due to inflation:

…roughly a fourth — 10% of all respondents — said they or their household were experiencing severe hardship, which Gallup defined as one that “affects your ability to maintain your current standard of living.” The rest said they were experiencing hardship that affected them only somewhat.

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As seen in the following chart, though a combined 71% of lower-income American households making less than $40,000 told Gallup the price increases were causing some level of financial difficulty, 71% in households making at least $100,000 said they weren’t feeling any.

CBS provided a further breakdown:

Data shows that Americans with less education and those living in rural areas are feeling the pinch most acutely.

Among Americans without a college degree, more than half say inflation has caused them financial hardship, compared to 30% of college-educated adults, according to a new Gallup poll.

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A recent analysis from Bank of America also underlines how inflation is disproportionately affecting lower-income and rural people. Rural Americans have seen their spending power drop 5.2% on an annualized basis, compared with 3.5% for urban households, the research found.

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One reason inflation is taking a bigger hit on rural Americans is that they tend to have lower incomes than city dwellers. In 2019, the average rural household income was $61,800, compared with $85,000 in urban areas, according to the Bureau of Labor Statistics.

But beyond having less money to spend, rural households also spend more money on the very goods that have seen the biggest price increases this year such as food, energy, cars and household furnishings, Bank of America found.

Energy costs take up more than 8% of a typical rural family’s budget, compared with 5.6% for an urban household, Bank of America found. Rural Americans spend an average of more than 10% on new and used cars, compared with 5.8% for urban residents, and slightly more on food — 12.5% versus 11.4%, according to the analysis. 

These differences are partly due to logistics. Rural households tend to have bigger houses and so spend more to keep them heated and cooled, noted Bank of America senior economist Aditya Bhave, one of the authors of the report. 

Rural dwellers also generally spend more on transportation because they travel longer distances, said Jane Kolodinsky, director of the Center for Rural Studies at the University of Vermont. That raises the cost of shipping food, fuel and other goods to rural consumers, making those items pricier, she noted.

Those factors, combined with the typically lower incomes of rural Americans, mean these consumers spend a larger share of their budget on day-to-day expenses, Kolodinsky said.

“Food and gasoline and fuel for your home … you need them, and you need them every week,” she said.

White House Chief of Staff Ron Klain recently endorsed a tweet claiming that inflation and supply chain issues affecting the country were “high class problems.” They are not. These are literally kitchen table issues for many Americans.