Is Food Inflation a Harbinger of Things to Come?

By John Mark Gray

In the Covid-19 world where supply chains have been disrupted and consumer behaviors have changed radically during the pandemic, one area which has really felt the brunt of these dynamic changes is food inflation. In the first three months of the year, food inflation in the US was steady at 1.8 to 1.9 percent compared to the same period a year ago. 

 

United States Food Inflation - One Year Chart

However, in April of 2020 food inflation jumped to 3.5%, May increased to 4%, and the month of June hit 4.5%. The months of July and August settled in at an elevated 4.1 percent year over year, and it will be interesting to see how the remainder of the year plays out with regard to this inflation category.

Depending upon how future stimulus is handled both at the Federal Reserve and the fiscal level through Congress, along with the relative value of the US Dollar against the country’s major trading partners, we could experience quite a rise in inflation over the next several years. Remember, that a weaker dollar leads to an increase in inflation which is especially relevant for an economy built around imported consumer goods and products.

The United States is due for an inflation shock, and I think even the energy markets are going to surprise people to the upside due to a myriad of factors like reduced capex spending and investment, oilfield decline rates, and producers going out of business. In fact, we have gotten away with a lot of poor policy decisions over the last decade, where we haven’t had to pay the inflation piper, but like the saying goes, every dog has its day, and some dogs like inflation have many days throughout the history of economies.

Therefore, expect to experience an uptick in overall inflation over the next several years, and it remains to be seen what the reaction of the Federal Reserve will be regarding monetary policy in the face of unsustainable debt obligations, slow real growth if any, and rising inflation pressures in the economy.

Courtesy of John Mark Gray, author of two books - Rockstar GM and Corporate Game Theory. John has an MA in Philosophy and an MBA in Business. He has worked in academia, Fortune 500 companies, consulting and financial markets. He has written many articles and white papers on financial markets and economics. He has a background in Logic & Game Theory and enjoys playing Chess and Poker in his spare time. 

 
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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