Get Ready for More Food Price Increases

Also, the Fed is taking a more aggressive tone in curtailing inflation, and older Americans could aid economic growth.

March 22, 2022

Food Receipt

ALEXANDRIA, Va.—Food prices will rise due to the ongoing war in Ukraine, reports the Washington Post. Even though very little food is imported into the U.S., food products that use cooking oils, aluminum packaging or commodity grains such as wheat will have a higher price tag and limited availability. Additionally, Russia is a major producer of fertilizer and other agricultural chemicals so the conflict could impact what will be grown on American soil.

“We knew the first two quarters of 2022 were going to be rough coming out of COVID, with the addition of some weather events,” Patrick Penfield, professor of practice in supply chain management at Syracuse University’s Whitman School of Management, told the Post. “But the thinking was that this would subside by the third quarter and inflationary pressures would go down. But that’s all off the table now.”

Penfield predicts that food prices, which were already heading higher, will rise further in the next month, and he sees double-digit inflation by the end of the year. Wheat futures are up 29% since February 25, and corn has risen 15% since that date. Soybean futures are up 6%.

“The No. 1 issue right now … is energy prices; then fertilizer prices, because Russia is the second-largest supplier; then you have the chemicals farmers need for their soil,” he told the Post. “Farmers are going to see increased costs across the board.”

Meanwhile, Federal Reserve Chairman Jerome Powell said the Fed will set its policies based on “actual progress” in resolving supply issues in the economy instead of models and forecasts. The Fed is also open to increasing interest rates faster so the economy can have a “soft landing,” reports Axios.

The Fed will "will take the necessary steps to ensure a return to price stability," Powell said. He also said rates could surpass the "neutral" rate, which is around 2.4%, and anything above that tends to restrict economic activity.

“It continues to seem likely that hoped-for supply-side healing will come over time as the world ultimately settles into some new normal, but the timing and scope of that relief are highly uncertain," said Powell.

In response to Powell’s more aggressive tone on stemming inflation, U.S. stock futures and government bond yields gained. S&P 500 and Dow Jones Industrial Average futures advanced 0.4% and 0.5%, respectively, this morning. The yield on the 10-year U.S. Treasury note jumped to 2.359%, from 2.315% yesterday.

Analysts say that older Americans could help fuel economic growth, as those 65 and older are ready to spend now that the Omicron variant is fading. U.S. household wealth for those 70 and older grew 38.1% from the first quarter of 2020 through the final quarter of 2021, according to the Federal Reserve.

“We have this big [older] demographic, their wealth went up tremendously these past two years,” Constantine Yannelis, assistant professor of finance at the University of Chicago Booth School of Business told the Wall Street Journal.

He added that with “much more available cash on hand, it’s quite likely they’re going to boost consumer spending, particularly on experiential categories they’ve not been able to patronize the last two years” like restaurants and hotels.