A team led by MSU is investigating price inflation in rural areas


Funding from the National Institute of Food and Agriculture, USDA

A Michigan State University-led research team has received an $800,000 grant to develop low-cost methods of measuring price inflation and the cost of living in rural areas. Pictured is Scott Loveridge, a professor in the Department of Agricultural, Food and Resource Economics at MSU, who is leading the project. (Photo provided)

EAST LANSING, Mich. — A Michigan State University-led research team has been awarded an $800,000 grant to develop low-cost methods to measure price inflation and the cost of living in rural areas. Funding is provided through the United States Department of Agriculture’s (USDA) National Institute of Food and Agriculture.

Scott Loveridge, an agricultural economics expert and professor in MSU’s Department of Agricultural, Food and Resource Economics (AFRE), is leading the project. Loveridge is also the associate dean for faculty affairs and development at MSU’s College of Agriculture and Natural Resources.

Working with Loveridge are Mark Skidmore, AFRE professor and chairman of the Morris Department of State and Local Government Finance and Policy; and Dusan Paredes, professor of economics at the Catholic University of the North in Chile.

As inflation grips the world for a variety of reasons, including supply shortages due to COVID-19, increased government spending, the conflict in Ukraine and high demand for products, consumers have felt the pinch.

According to federal labor data for June 2022, U.S. inflation rose 9.1% year over year, the largest 12-month increase in more than 40 years. Inflation has cooled since then, but in October 2022 the prices of goods and services were still 7.7% higher than this time last year.

The data, however, is not representative of the entire country. Because these statistics rely on measurements like the Consumer Price Index (CPI), which gathers information about changes in the prices of goods and services over time in urban areas, the roughly 25% of the US population who live in rural areas are left out.

“Rural businesses and government programs will benefit from a better understanding of rural inflation to inform investment and assistance decisions,” said Loveridge, whose work is supported in part by MSU AgBioResearch. “Rural prices are dynamic, vary by geography and may not move in tandem with traditional measures. For example, regions with significant corn production may be vulnerable to drought, flooding, or changes in national policy such as the abandonment of ethanol.”

Loveridge said knowing rural inflation can help policymakers address short-term supply constraints resulting from disasters, increase investment to increase food supplies, help inform business investment, better understand farm labor shortages and improve food aid and assistance programs. income.

“An imperfect understanding of rural inflation can lead to a misallocation of federal resources,” Loveridge said. “It can also provide poor information for business analysis that supports agricultural producers and misinformed policies in local business development efforts.”

For the new project, the researchers will test several approaches, such as web scraping to collect data across the country, focusing on the prices of a set of standardized goods—gasoline, used cars and real estate.

Another method used by the team is the Big Mac index, a widely cited low-cost way of measuring price differences without surveying households. Created Economist in 1986, the Big Mac Index measures the price of a McDonald’s hamburger in different communities to estimate purchasing power parity.

Loveridge said the Big Mac Index is useful because the opportunities for arbitrage — buying a product in one market and selling it in another for a profit — are much smaller than in other commodities. This allows for a more accurate picture of the economic conditions in this area.

After studying these strategies, the team will conduct testing with more reliable methods such as CPI to assess the pros and cons.

Stakeholder engagement is a critical component of the project. An advisory board was assembled that includes members of the USDA Economic Research Service, the Northern Lakes Economic Alliance, the Federal Reserve System of Chicago, the Bureau of Labor Statistics, GreenStone Farm Credit Services, and the University of Illinois.

“We plan to develop policy briefs, maps and journal articles to advocate for policymakers so that rural communities are not left out of these conversations,” Loveridge said. “Rural constituencies and their people’s experiences are important to inform new policies.”

— Michigan State University ANR A team led by MSU is investigating price inflation in rural areas

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