Economist: Rural inflation trends higher than in urban centers

The inflation rate in rural areas is usually higher than in urban centers because of the lack of competition and that has real life consequences for local businesses in rural Roosevelt and Curry counties.

Kayhan Koleyni, assistant professor of economics at Eastern New Mexico University, said after his comment that rural inflation rates are typically higher, he estimates the inflation rate in Roosevelt and Curry counties (October numbers) to be 8.5-8.7 percent, based on previous economic studies, because there are no official numbers for rural areas.

The national average for inflation is 7.7 percent, based on the Bureau of Labor Statistics, which tracks these numbers, Koleyni said.

Julie Percival, regional economist for the Bureau of Labor Statistics in the Dallas regional office, spoke to The News on Thursday.

Percival said although the BLS does not specifically track information down to the rural county level, she can confirm a trend that the inflation rate is higher in the smaller populated areas compared to the urban areas.

The six month average inflation rate for the first half of 2022 across the United States overall was 8.0 percent in the large metro areas—over 2.5 million population-- compared to 8.6 percent in the smaller urban areas, she said. The smaller areas are 2.5 million and less and includes small rural county data. “The Mountain region (which includes New Mexico, Colorado and Arizona) experienced an overall higher rate of inflation (9.7 percent) compared to the U.S. rate (8.3 percent) in the first half of 2022.”

Koleyni said that by setting the Federal Funds Rate, the government strives to strike a balance between the inflation rate and the unemployment rate. They do this by changing the interest rates. The current Fed Fund Rate is in the range of 3.5 to 4 percent. This rate in turn affects the interest rates on home and car loans, for example.

The federal government is trying to increase the cost of borrowing money to buy a home so that it will be “harder for people to borrow,” he said. The Federal Reserve will study the impact the rate has on the economy.

“Probably the housing market in the next few months is going to cool down,” he said. The housing market will not be like it has been in the past two years.

“The mortgage rate now is more than 7 percent,” he said.

“The Federal Reserve has a dual mandate—pursuing the economic goals of maximum employment and price stability,” he said in an email. “Fed judges that low and stable inflation rate is at 2 percent per year. So, they target for 2% but usually they cannot reach to this target. Even before COVID, Fed was not successful to keep inflation at 2% and for a long period of time, inflation was below 2%. Fed used different monetary tools but could not reach to 2% target. After COVID, it is opposite. Now, inflation is way above 2% target and Fed tries to get back to 2% by tightening monetary policy (increasing the federal funds rate). However, by tightening the monetary policy economic growth will slow down and the likelihood of recession will increase. So, we should wait to see if Fed can make this balance between inflation and unemployment.

“I think for the next couple of months (or even a year) inflation will stay above 2% target but below 8% (that we are experiencing now), but unemployment rate will be more than 3.7% (that we are experiencing now). Also, a mild recession is likely in next 2 years.”

In Roosevelt County, the agricultural sector, retail, transportation, and warehousing have the largest part of the local economy and the state government is next, he said.

The News interviewed a local dairy farmer and asked him how inflation has affected his business.

Jeroen Van Der Ploeg, owns a dairy with 2,300 cows located on a 4,000-acre farm between Clovis and Texico.

“My profit margin has been reduced astronomically” this past year due to an increase in the cost of operating the business, Van Der Ploeg said.

Looking at his records, he said the cost of electricity rose by 18.7 percent the past year, labor went up by about 10 percent and “it has been really expensive to feed the animals.” The price of grain increased by 24.5 percent from 2021 to 2022. The cost of natural gas, diesel fuel and oil increased by 30 percent.

He sells his milk to a “middle guy,” the Dairy Farmers of America, which picks up the milk, ships and processes it and sends it to the buyer, he said. The cooperative charges a fee and “the remainder is what you’re paid.”

“A number of dairy farmers are selling out,” he said. “In the state of New Mexico, multiple dairies have closed their doors because of costs in Clovis, Hobbes and areas south of Albuquerque.”

It is also difficult to find workers now, he said.

“There are a lot of other additional dynamics in the dairy industry, but you’d have to examine something like the input costs along with this to do a deep enough dive to understand what might be driving farms to close,” Percival said.