Greater Minnesotans may be feeling the squeeze of inflation more so than their metro counterparts

Across the state, Minnesotans are concerned with the rising cost of living.

Earlier this month, the Bureau of Labor Statistics again announced record levels of inflation, with the Consumer Price Index (CPI), a measure of the cost of things people buy, up 8.7 percent from a year ago in the Twin Cities area.

Some of the most rapid rises in price were in things households need: groceries, household energy, and motor vehicle gas were up 14 percent, 40 percent and 47 percent, respectively, over this time last year. 

A recent MinnPost poll found widespread concern over the cost of groceries, gas and more among Minnesotans. But those worries were more acute in Greater Minnesota, where more people live in rural areas and where a huge 79 percent of respondents said they felt their incomes were falling behind the cost of living, compared to 72 percent of Twin Cities residents.

Data on inflation in rural areas is sparse. The CPI focuses on tracking inflation in urban areas by looking at the change in the price of goods, weighted on how much they factor into urban household budgets.

But while we don’t have great data on how inflation affects rural residents, economists say it’s probably pinching households more, on average, in rural parts of Greater Minnesota than the cities due to lower wages, logistics and what people spend their money on.

Lower pay

On average, people living in Greater Minnesota make less money than people living in the Twin Cities.

In 2019, the median household income for residents of the seven-county Twin Cities metro area was $84,000 — nearly $20,000 more than the $64,400 median income in Greater Minnesota, according to Census data compiled by Minnesota Compass.

Having lower incomes can have major ramifications for the way people feel inflation, said Brigid Tuck, senior economic impact analyst with the University of Minnesota Extension.

“We’ve historically (had) a little bit lower wages, but that matches our lower cost of living,” Tuck said. “If you see that lower cost of living eroding, but your wage is not keeping pace, that does cause concern.” 

Steve King, mayor of the southern Minnesota city of Austin, said he’s been hearing concerns about wages amid rising costs. A lot of people are living paycheck to paycheck in his area. Only 22.8 percent percent in the city have a bachelor’s degree or higher, according to federal data. In Hennepin County, it’s 51 percent.

“In the metro area you certainly have more folks that are in that educated pool that probably are driving higher incomes that maybe don’t feel the pinch,” King said. “But down here I think we’re a working class community certainly still and those folks are certainly being affected because the wages are absolutely not keeping up with what the inflation is.”

People aren’t getting immediate pay raises to address spiking gas costs or rising grocery prices. And even a new periodic union contract might not balance out inflation, King said.

More exposure to rising costs

Another issue for rural residents is exposure to inflation. The CPI has tracked price increases in a broad range of things households buy in the last year. But not all households consume those goods equally. 

“Depending on how you spend your money, your actual cost of living is maybe quite a bit different from the headline rate of inflation,” said Joe Mahon, regional outreach director at the Federal Reserve Bank of Minneapolis. “I think that that’s generally true of what we’re seeing in rural areas right now.”

Many people living in rural households, in particular, are likely consuming more of some of the things like gas and energy that have seen costs jump the most.

For example, the CPI for unleaded gas is up 47 percent over a year ago in the latest Twin Cities data. People in rural areas tend to drive more and can’t necessarily take the bus to avoid higher prices at the pump.

“If you live in the metro and use public transportation, your exposure to those gas price changes is much more limited than if you’re in a rural community and you’ve got a 30 minute or 40 mile commute every day,” Tuck said. “All-of-a sudden, that is pushing more on you than it might be pushing on someone else in the metro.”

When it comes to groceries, there tend to be fewer stores in rural areas — and farther drives between them.

Ket Christianson co-owns KC’s Country Market, a grocery store with two locations in northwestern Minnesota’s Roseau County. 

At the Greenbush location, about 20 miles west of Roseau, customers don’t have a ton of options: They can shop at KC’s Country Market, at the dollar store, or they can drive to another town. But with gas prices high, many customers are shopping close to home.

Christianson has noticed prices rising especially for frozen and processed foods, while the cost of things like produce and fresh meat are more stable. And staying on top of price changes is keeping the store’s team busier.

“Every week we’re looking at the numbers make sure we’re repricing right and accordingly because for us, we’re we’re kind of subject to the distributor and what their pricing is,” store manager Kelly Christianson said.

While prices have risen, business remains stable, Ket Christianson said. People still buy the same things. “They have to feed their family,” she said. They just might buy a bit less of some things or stock up on sale items.

Another sector hit hard by inflation has been energy. That includes gasoline prices, but also the cost of natural gas and propane has risen significantly, said Darrick Moe, president and CEO of the Minnesota Rural Electric Association. The electric cooperatives Moe represents have been able to hold rates largely steady. 

But in general, “energy inflation has been dramatically high,” Moe said.

That hits people in Greater Minnesota harder, Moe said. Nearly every county in Greater Minnesota faces an average higher “energy burden,” than the seven-county Twin Cities metro area. Energy burden is a measure of annual housing energy costs divided by average household income.

People in rural areas typically have higher energy costs already because many don’t have access to cheaper natural gas for heating found in cities, said Annie Levenson-Falk, executive director of the Citizens Utility Board, a consumer-advocate nonprofit.

Instead, people in rural areas mostly rely mainly on propane, fuel oil or electricity, which Levenson-Falk said are “substantially” more expensive.

Levenson-Falk said data she uses to understand propane cost trends comes in during winter months so it’s hard to gauge its status. Many people in cities, including Minneapolis and St. Paul, also face high energy burdens, she said.

But all fuel prices are up, Levenson-Falk said, and there are still unique circumstances in rural areas that make energy more expensive. For instance, Levenson-Falk said in general that rural cooperatives providing electricity tend to be a bit more expensive because there’s often fewer people to spread costs to in a rural area. Electricity bills from utilities can be slow to change in response to inflation, however, including in the case of large investor-owned utilities that are regulated by the state, Levenson-Falk said.

Governments face inflation pressure

Inflation is also wreaking havoc on local government budgets, and some of the areas hitting consumers the hardest are also concerns for cities and counties.

Tim Houle, the county administrator for Crow Wing County, said his biggest worry is the rising cost of fuels and energy, which is tied to everything from heating buildings to running snow plows and county vehicles to building the roads that they drive on.

Second, the price of construction materials is tough. And third, because everyone’s feeling inflationary pressures, employees will want higher wages.

On top of that, Houle said the Legislature’s failure to pass funding for local government means less money for counties.

“We are particularly disappointed in the Legislature’s failure to govern,” he said. “(The state) is sitting on $12 billion and people are hurting out here. And they didn’t get their work done.”

Austin mayor King said inflation is making their overhaul of a 100-year-old wastewater treatment plant continually more expensive. When the city asked for state bonding money earlier this year, the total cost of the project was about $84 million. Now it’s $100 million and could rise higher. Without a bonding bill from the state, smaller cities like his with aging infrastructure need to shoulder even higher costs.

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“Less people in the pool to help support the cost,” King said. “The smaller cities, that’s quite a hit.”

King also said a budget that supports a “functioning city” might need a 7 percent levy increase, but Austin officials have to weigh how inflation is impacting residents — especially since the Legislature didn’t pass its $4 billion tax bill this year.

“How much can the citizens take, we gotta be conscious of that,” King said.