Rising gas prices could affect South Carolina’s economic recovery more than other states because of its high number of poor people living in rural areas, a new report showed.
The Palmetto State is second only to Mississippi in the percentage of after-tax personal income it spends on gasoline, closely followed by Alabama and Kentucky, according to a study released last week by Wells Fargo. The culprit is a combination of higher prices, lower incomes and even vehicle choice, particularly in the more rural parts of the country.
The rural poor also usually have to drive farther than city dwellers to reach jobs, shopping and school, which increases the impact of gas prices, said Wells Fargo economist Mark Vitner.
Spending a higher percentage of their income on gas means residents of the rural South generally have less to spend on eating out, purchasing electronics or buying a new home. That ripple effect hurts the broader economy.
Nationally, gas prices have jumped 48 cents since Jan. 1 to an average $3.76 per gallon. In South Carolina, the average price of a gallon of regular is $3.56, according to AAA’s fuel gauge. The price is lower than the national average because the state has one of the lowest gasoline taxes in the nation.
While prices are rising, “income growth hasn’t been all that strong for South Carolinians,” Vitner said. “Certainly the folks that work at BMW or will work at Boeing or some of the other big (manufacturing plant) announcements will help in some areas. But there is very little income growth in most areas of the state.”
Nationally, gasoline prices have risen 9.4 percent and grocery store food prices have increased 4.7 percent since last January, according to the report.
The rise in gasoline and grocery costs sent overall inflation up 2.4 percent, which greatly cut into consumers’ purchasing power.
At the same time, disposable income grew just 3 percent over the past year and, after adjusting for inflation, real disposable income rose just 0.6 percent, the report said. After accounting for population growth, real disposable income per person was essentially unchanged.
Per capita income in rural areas tends to be lower than in urban hubs and the lifestyle typical of many rural residents makes them more vulnerable to higher gasoline prices, the report said. Nationwide, per capita personal income in rural areas is 23.8 percent below incomes in urban areas. Residents of rural areas tend to drive further distances to work on average, are more likely to drive alone, and are less likely to have viable public transit alternatives.
Residents of rural areas are also more likely to drive trucks or SUVs, which tend to get fewer miles per gallon relative to automobiles.
Rising gas prices have become a political issue.
At a hearing Wednesday, Congressional Republicans and oil industry leaders called for more U.S. gas production to combat rising prices, fast becoming an issue in the presidential campaign. Democrats said oil production has increased since Obama took office. They blamed the recent spike in gas prices on tensions in the Middle East and speculation by Wall Street investors.
Oil prices rose above $107 a barrel last week, up from $75 in October, because of diplomatic tensions with Iran, a major oil producer, and as U.S. economic indicators including employment have slowly improved over the last few months.
Retail gas prices are at their highest levels ever for this time of year despite ample supplies and declining demand. That’s because tension in the Persian Gulf has kept crude oil prices around $100 per barrel for most of the month.
Analysts say oil prices are likely to remain at those levels until there is more clarity about what will happen in the Gulf, where Iran has threatened to close the Strait of Hormuz if the U.S. and other countries impose more sanctions on its nuclear program.
Vitner said there is little chance that rising oil prices could trigger another recession, unless they reach $120 a barrel – a figure he said was unlikely. He also doubted that gasoline would reach $4 a gallon.
Still, he said, “It’s hard to find a silver lining in higher gas prices unless you’re living in Texas.”
The Associated Press contributed to this report.