Inflation Concerns Remain Though Agricultural Inflation is Lagging

BROOKINGS, SD – Michelle Bowman, a Kansas-based Governor of the Federal Reserve System board, spoke earlier this month to an audience at South Dakota State University about the agricultural sector and what the Fed might expect for the year ahead.

For most major commodities, Bowman explained, prices remain above pre-pandemic levels, and farm income is expected to be higher than a year ago for the second consecutive year.

She did express real concern about input prices because “farmers lock in prices for inputs before planting, (thus) the effects of substantial price increases for inputs like fuel and fertilizer have not yet been fully realized.”

In their planning for next season’s planting, farmers are much more concerned about input cost inflation the rural Kansas banker said. “Some estimates show that farmers could pay 30 to 70 percent more for fertilizer for the 2022 season. In addition, if they can even find equipment or land to buy, prices for these assets have continued to increase.”

So what happens if elevated inflation readings continue? Bowman warns that “we may begin to see an imprint on longer-run inflation expectations. While short-term inflation expectations have moved up with the recent period of increased inflation, longer-term measures have remained relatively stable.”

There have been some comparisons to today’s inflation situation with the high levels experienced in the 80s and 80s, but she explained that “in more recent decades, inflation has run close to our 2 percent goal, helping anchor the public’s inflation expectations at levels that seem consistent with our goal.” This is relevant because Fed policy has long considered the anchoring of inflation expectations an important condition for meeting monetary policy goals.

Despite concerns about the near-term, Bowman concluded that while many risks to the outlook remain, “I expect that the recovery will continue in the coming months, and that steady progress will be made toward our maximum-employment and price-stability goals.”
(SOURCE: All Ag News)