USA Inflation and Interest Rates in the Agribusiness Marketplace –Part 1
The impact of global inflation on businesses, general industries, and consumers is continuously increasing. In the United States, inflation affects the prices of thousands of goods and services for urban and rural areas, including food, energy, and even haircuts.
The average annual inflation rate has been observed and seasonally adjusted at 2.1% from 2000 to 2020. Economists determined the percentage as a favorable level of inflation to stabilize consumption and general economic growth. In 2021, the monthly inflation rate was at an average of under 5%, dramatically changing to an annual rate of 8.6%, based on the US Bureau of Labor Statistics’ May report, the highest rate recorded in more than 30 years.
The highest inflation rate reached a Consumer Price Index (CPI) of 42.4%, covering the housing expenses, like apartment rents, home purchasing, and renovations. The transportation department follows the highest inflation rate with a CPI of 15.7%, while the food and beverages sector comes at 15.2%. The wages in the US are continuously increasing at 11%, according to the US Bureau of Economic Analysis.
Inflation affects every industry, especially the agriculture sector and consumers. When agricultural input prices increases, so do commodity prices. The demand for farm inputs, such as fertilizers, seeds, farm equipment, livestock, and others, will likely increase when commodity prices rise.
If inflation levels are sustained, the central bank of the United States (Federal Reserve) increases interest rates. It will result in additional cost-push inflation on input costs for agribusinesses, which typically rely on borrowed capital. Ultimately, when interest rates rise, the exchange rates, land values, and general living expenses can significantly affect the cost rates of farm resources.
US Food Supply and Consumers
US consumers have undergone a significant year-over-year food price increase for all food categories. It has been recorded that inflation prompts consumers to spend more on the same quantity of groceries.
The most significant chunk of the US food supply is produced locally; imports only cover approximately 15%, which comprises more fruits, seafood, and vegetables.
Although some experts remark that there are no substantial food shortages in the US, some food manufacturers may be affected by the supply chain difficulties, especially on products like sunflower seed oil, packaging, and aluminum for cans. Likely, food manufacturers may also compete considerably with non-food manufacturers in supplying animal feeds and biofuels for industrial purposes.
In the US, grocery and supermarket food prices increased by 1.3% from April to May 2022, 11.9% higher than its counterpart report in the last year. With the global economic situation, the USDA Economic Research Service forecasts that these prices will continue to increase between 8.5% to 9.5%. Following inflation, it is perceived to create global hunger, food insecurity, and a lot of instability. –CONTINUE READING PART 2 ON THURSDAY!
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