Last week, the Bureau of Labor Statistics announced that April’s consumer prices were up 8.3 percent from a year earlier. Micheal Clements shares more on the impacts of inflation and the steps to turn the tide.
Clements: Consumers everywhere are feeling the squeeze of inflation, and Roger Cryan, Chief Economist of the American Farm Bureau Federation, says farmers and ranchers need the Federal Reserve Bank to address the issue. Cryan says ongoing inflation stems from the COVID-19 pandemic.
Cryan: Well, the short answer is too much money is causing it and it's not going away soon. The longer answer is in our Market Intel report that we put out last week which you can subscribe to those reports at fb.org/marketIntel. March’s inflation was the highest in 40 years. There's been a lot of talk about supply chain causing inflation. Really, what's been happening is general supply has been having a hard time keeping up with the demand in the economy. So, it is a little supply chain, but mostly it's about too much money in the economy.
Clements: The Fed increased the money supply by more than 40 percent in 20 months. Cryan says inflation creates a disconnect between long-term and short-term pricing.
Cryan: Inflation is a problem because it creates a lot of price uncertainty. It really creates a disconnect between long term and short-term lending, and probably most damaging is that it raises long-term interest rates. So, this raises the farmer's costs of borrowing for expansion or for reinvestment on the farm. That was really the biggest trouble with inflation back in the 70s and 80s for the farmers, it created a very painful decade in the 1980s, and it's really important to deal with this.
Clements: The silver lining, Cryan says, is since the 1980s, interest rates have been historically low.
Cryan: In 1981, the 30-year mortgage rate peaked at over 18 percent. And that was because we had spent the better part of a decade apparently unable to deal with inflation. The Fed, what they are doing now and what they promised to do going forward, seem to be the right steps and I think it's created a lot more confidence in the market, and we'll see how long it takes for these rates to start coming back down, but it may be a year or two.