Nalivka: Inflation And U.S. Food Prices

Inflation!   This is an important topic that affects every American and one that reveals varying opinions.  I often think of a classmate in a macroeconomics class in graduate school when asked by the professor the definition of inflation, he quickly responded “too many dollars chasing too few goods” which earned a quick rebuke from the professor.  Most of us were glad he didn’t ask us!  At any rate, it probably doesn’t take a graduate-level economics course to see where increasing demand coupled with the Fed increasing the money supply and government stimulus spending will lead – inflationary pressure on the economy and the U.S. consumer.  Inflation represents a burden on all Americans as the value of our U.S. dollar shrinks.

When I give presentations to farmers and ranchers and talk about costs of production, I often hear the statement, “my costs have done nothing but go higher.” That statement would suggest or indicate that inflation is pretty significant in production agriculture.  Ask any rancher or farmer buying a new pickup, a tractor, an acre of quality farm ground, grazing, or even a good saddle horse and they wouldn’t disagree.   I wouldn’t disagree.  And, that’s not ignoring the total cost of labor, a major contributor to costs of production and inflation. 

On the consumer end of the spectrum, I think most Americans when asked about rising costs of living are quick to point out the cost of gasoline and food.  The perspective has changed somewhat with COVID but in general, prices for food and energy seem to be viewed as the culprits hitting the budget even though, on average, food prices remain relatively low in the U.S. accounting for about 10% to 12% of disposable income.  I am cautious about this statement because as expected, the percentage is significantly higher for Americans who are at the lower end of the income range albeit, there are many programs for consumers to ease that burden.  

At some point, the disconnect between costs of production incurred by U.S. farmers and ranchers to efficiently produce an abundant supply of quality, safe food and the consumers purchasing that food will become even more apparent.   I think this discussion really centers on food security which is too often one of those things taken for granted.  This situation is likely to change as substantial inflation takes hold - both for consumers and producers of food.


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