Inflation Is Widening The Gap Between North And South

The resurgence of inflation is widening the economic gap between North and South, as prices of goods and services have been rising faster in the Southern states than in the Northern states. That’s the key finding of a MerchantMaverick's survey, which identifies the 10 U.S. states where inflation is hitting consumers the hardest.

They are all in the South, where median incomes are lower than in the North. For instance, the top three states hit the hardest by inflation are Louisiana, Florida, and Tennessee. They are all in the South and have median incomes below the average, meaning that inflation has a more significant impact on family budgets in these states, widening the economic gap between North and South.

"We're seeing a bit of a tradeoff right now where you have a lot of states that did quite well during the pandemic tending to also feel a heavier weight from inflation as the demand for housing, goods, and services have increased during a time of constrained supply," Chris Motola, Special Data Editor at MerchantMaverick.com, told International Business Times.

"This can be particularly burdensome in states with historically low median household incomes that are seeing an influx of high-earners from other states. While many states in the South still may have a lower overall cost of living than the Northeast, we're effectively witnessing a compression of regional price parity relative to where it was in 2019."

What's behind the disproportional rise in prices in the Southern states? According to the survey, population shifted from the Northeast and the West Coast to the South during the pandemic, as people moved away from bigger cities to smaller, more rural communinities. While this is a positive development for the Southern states, it has pushed up housing costs even before inflation becomes a problem across the county.

The good news is that population moves tend to stabilize over time, as housing cost differentials across states slow down population movements. Still, the uneven burden of inflation across states adds another urgent reason for the nation's policymakers to act swiftly and decisively to hold back the beast, which they let out from the cage in the first place with easy money policies.

Thus far, this task has been left to the Federal Reserve, which can influence one side of the inflation equation, the demand side, by hiking interest rates. Now it’s time for the federal government to do something about the other side, the supply side, by taking policies to raise energy supplies. That's key to lowering oil prices, which have been one of the drivers behind the resurgence in inflation.