ISU report finds rural households are hit harder by inflation
Rural households are being disproportionately impacted by rising inflation. An Iowa State University analysis shows the disposable income of residents in small towns has shrunk significantly in the past year.
The disposable income for rural residents is down 38 percent – dropping from nearly $10,000 a year to just $6,000. Urban areas haven’t seen quite as significant of a drop with a disposable income decrease of 17 percent .
“That’s a big drop,” Peters said. “And people probably hadn’t saved a lot of money in anticipation of it.”
That’s because they’re spending more on transportation and fuel oil heating, according to Iowa State University researcher Dave Peters. His report found that households in areas with a population of 2,500 people or less are spending $919 more on gasoline than they were a year ago.
Inflation rose to more than 9 percent last month – reaching its highest point in rate in nearly 41 years.
Peters found that the cost of electricity, used vehicles and pet and veterinary services all grew faster for rural towns than for cities. But, the price of gasoline has taken the biggest chunk out of their incomes – as rural residents often have longer, unavoidable commutes.
At the same time, wages in rural areas have been slow to grow. Those in cities have seen an 4.6% increase in earnings. But, for small towns, they’ve only risen by 2.6%.
This means that those in rural communities have less of a safety net, Peters said. They’re less prepared to shoulder the costs of unexpected events that may require them to spend more.
“[You may have] a healthcare issue that costs extra money. You get a reduction in your hours. Or have a big home repair that you didn’t plan for,” Peters said. “Any kind of these unexpected expenses – that’s only $6,000 to cover that.”
Peters said he’s most concerned with how long these communities can withstand inflationary costs. He said if inflation subsides as quickly as it rose, then he’s confident that rural communities can bounce back from this hit.
If the higher costs are more permanent, Peters said it’s a different story.
“If they’re for the long-term, then this becomes a big crisis for rural households. That disposable income cushion makes them really vulnerable to debt and bankruptcy,” Peters said.
He said low-income and older residents on a fixed income in rural areas are at even greater risk of being impacted. For these populations, inflation can increase debt and result in defaults on payments.