Good news on inflation means Federal Reserve should back off on further interest rate hikes

Milwaukee Journal Sentinel (WI)

Now, let’s examine the other “fuel”: food. Groceries began their rise during Covid-19 as supply chains were disrupted and food processors, especially meat, experienced rolling shutdowns of facilities. Food prices continued their rise in 2022. Much of this simply came from the concentrated market character of processed food, where a few big players could collude to drive up prices (profits). But, underlying factors were also in play, such as disruptions and uncertainty of global grain supply given the war between Russia and Ukraine, where both constitute nearly a third of global wheat exports, which then impacts bread and pasta prices.

Eggs are another staple of many people’s diets, and a food that often dramatically rises during energy crises. Chicken feed cost is connected to petroleum through fertilizer and diesel needed to grow it. Avian enclosures then use more fuel yet for heat. Most infamously, egg prices rocketed up by nearly 50% in the wake of the Yom Kippur war of 1973 that kicked of the 300% jump in the cost of oil that year. Similarly, the energy price spikes from the Russia/Ukraine war had the same impact in 2022, which saw egg prices jump up roughly 25%. As always, when the waters are chummed with energy price spikes, sharks come to feed, with some collusion and speculation further driving up prices. Yet, egg prices (like oil and gas) are also now falling and would be dropping faster still if not for Avian flu. But, that too will get sorted as the market corrects with greater supply.

In short, inflation is falling, and not just for non-core items. Therefore, the Federal Reserve would be well advised to back off on further hikes to the prime lending rate, which slows the economy and hurts working people.

Jeffrey Sommers is Professor of Political Economy & Public Policy at the University of Wisconsin-Milwaukee and Senior Fellow at their Institute of World Affairs.