trying to contain inflation, the Federal Reserve has kicked off a series of sustained rate hikes that many expect, which has already taken its toll on the stock and housing markets, and job losses could follow. Yet while Americans are tired of paying record-high gas and grocery prices, another round of price hikes is moving through the food supply chain and is expected to benefit consumers this fall.
“People don’t realize what’s solving their problems,” said Texas farmer Lynn “Bugsy” Allen. “They think it’s hard now, you have to wait until October. Food prices will double.”
This Food prices rose 8.8% The results Americans are already seeing do not take into account the dramatic cost increases that farmers are now experiencing. This is because farmers pay the cost up front, only to recover the cost several months later at the point of sale.
“Typically, what we see on the farm, the consumer doesn’t see it for another 18 months,” said John Chester, a corn, wheat and soybean farmer in Tennessee. But with the severity of these cost increases, consumers may feel the impact sooner, especially if weather becomes a factor.
Lorenda Overman, a North Carolina farmer who raises pigs and grows corn, soybeans and sweet potatoes, said soaring fuel costs have left her farm in the red this year. “Nothing that consumers pay right now is going to make up the gap for farmers,” she said. “Grocery stores aren’t raising prices yet,” but she expects them to start raising prices in late summer.
Much of the cost of food depends on oil prices.
“They don’t have electric trucks to deliver food, and they don’t have electric tractors,” Allen said. “It all needs diesel to run.”
Chester said fuel and fertilizer combined accounted for 55 percent of his total costs.Diesel prices have more than doubled, from $2.50 a gallon at the end of 2020 to over $5 a gallon today. Farmers say the cost of fertilizer, a derivative of petroleum, has tripled, and in some cases quadrupled.
“When you look at machinery that uses diesel, it’s agricultural equipment, railroads and truck drivers,” said Daniel Turner, executive director of energy advocacy group Power the Future. Diesel “transports all our goods, it grows our food. From the cargo ships arriving from overseas to the trucks or trains that carry those goods across the country. Now all of these things add to the cost, and those costs are passed on to consumers. “
“The surge in food and energy costs has wreaked havoc on the demand of American households,” said Joseph Lavorgna, chief economist at European bank Natixis. “If you have to pay more for food, heat or cool your home, or put gas in your car to go to work, there’s less money elsewhere.” Higher gas and food prices will make Americans Less money is spent on other goods, which will reduce demand and have a knock-on effect on the wider economy.
Economic reports suggest that Americans have been unable to keep pace with inflation. Household saving falls The rate fell to a 14-year low as people struggled to maintain their standard of living.Credit card debt is hitting record highRetailers say they’re preparing for more consumers limit their spending to the “basics of the most basic”.
While Americans’ loss of purchasing power may help reduce inflation, some economists fear a return to the “stagflation” of the 1970s, where rising prices are accompanied by economic stagnation and rising unemployment. The Fed raised interest rates to nearly 20% and finally brought that period of inflation under control.
Compared to the Carter-era energy crisis, which was sparked by embargoes by foreign oil producers at a time when U.S. oil production fell, today’s energy shortages are largely the result of U.S. domestic policy as the Biden administration seeks to force Americans Shift from fossil fuels to wind, solar and electricity. The effort includes closing pipelines, suspending oil and gas leases and putting up regulatory hurdles — all of which have reduced new investment in U.S. oil and gas production.
last week, Biden statement The surge in oil prices is “an incredible transformation that is taking place, and God forbid, when it ends, we will be stronger and the world will be stronger and less reliant on fossil fuels.”
Energy Secretary Jennifer Granholm said last week that rising oil prices are “exclamation mark”, because of the need to transition to wind and solar and “build homegrown clean energy”. Granholm previously statement “If you drive an electric car, it won’t affect you.”
Samantha Ball, Administrator of the Biden Agency for International Development, Say The solution to rising fertilizer prices is “natural solutions like manure and compost, which may accelerate a transformation that would otherwise be in the interests of farmers. Never let a crisis go to waste.”
“That’s not the real world,” Offerman said. “We have the highest hog production density in the country and don’t have enough pig manure, turkey manure or chicken manure to fertilize. We tried to lock in some chicken and turkey litter to sprinkle on our crops this fall, but there was none. It’s just that there aren’t enough animals to produce the fertilizer we need.”
“Energy is a very capital-intensive business, and our energy capex levels have basically dropped to about half what they were a few years ago,” Lavorgna said. “A lot of it has to do with oil companies turning a deaf ear to what shareholders want, or more importantly, what regulators and politicians want.”
“incredibly curious [Biden’s] “We will do everything we can to increase U.S. production,” Turner said. “They’re happy with the current state because of their green philosophy, and we’re just the necessary victims.”
Combined with broken global supply chains, oil and food prices are a key reason many economists believe the Fed will struggle to control inflation. “There is a real risk to the price [of gas] It could hit $6 a gallon by August,” Natasha Kaneva, head of global oil and commodities research at JPMorgan, said. tell the media. “U.S. retail prices could surge another 37% by August.”
The higher prices climb, the more aggressive the Fed needs to be to control inflation.
“We think the risk is skewed towards the more pronounced economic recessionas inflation proves to be more persistent than widely expected … the Fed’s actions currently envisioned by the market will be too slow to contain inflation,” economists at Deutsche Bank said in a note. research report Titled “Why the upcoming recession will be worse than expected”.
“A mild recession would be a relatively small increase in unemployment,” Lavonia said. “However, if the Fed sees a need to squeeze demand further, then we’re in for a deeper recession and unemployment could double or more.”
A unique feature of the current economic crisis is the extent to which it is driven by government actions rather than market failures. That includes trillions of dollars in federal spending to shore up an economy teetering from draconian government lockdowns that now appear to be doing little to contain the coronavirus. The Fed has kept interest rates near zero while expanding its balance sheet to $9 trillion, flooding the U.S. with cash for this spending. The policies of the Biden administration have further exacerbated these problems. readjust the economy and Antipathy towards the U.S. fossil fuel industryand the Western boycott of Russian oil and fertilizer exports following the Russian invasion of Ukraine.
Inflation is the result of too many dollars chasing too few commodities, and in this case, it’s a “perfect storm” on both sides of the equation. As the Federal Reserve struggles to cool demand by raising interest rates, some economists say a Biden administration must reverse its policies to weaken productivity and curb supply.
“If you want to fix inflation, you need to do it through the painful way the Fed has acted and with higher interest rates and borrowing costs,” said Jonathan Williams, chief economist at the U.S. Legislative Exchange Committee. But at the same time, “you Doing this on the supply side reduces taxes and restores productivity in the United States.”
Given the federal government’s so far reluctance to take the necessary steps, some states have come up with their own solutions, Williams said. Four states, Iowa, Mississippi, Georgia and Arizona, have dropped from a progressive income tax rate of up to 8% to a flat rate of 2% to 4% since March. North Carolina eliminated the corporate income tax, and nine other states currently have no state income tax at all.
On May 17, Sen. John Barrasso (R-Wy.) and other GOP Republicans introduced Shore Act, which would empower states to regulate oil and gas production on federal lands within their borders. They introduced the Lease Now Act at the same time, requiring the Home Office to resume the sale of oil and gas leases.
When asked what Biden could do to help farmers, Allen said “Lower fuel prices. It will save the middle class. It will help them buy food.”