Inflation continues to rise as the Bureau of Labor Statistics reports that year-over-year inflation in March was 8.5%, and Americans are experiencing the highest level of inflation in 40 years, said Roger Cryan, chief economist of the American Farm Bureau Federation (AFBF).
“The Federal Reserve Bank has the levers to manage the money supply, and there was a 40% increase in the money supply from March 2020 to last December,” Cryan said. “So for almost two years a lot of people in the economy had confidence in the system and prices haven’t moved much, but now there’s so much money out there inflationary expectations are building and what we are seeing now is inflation accelerating, I don’t know whether or not to define that as runaway inflation, but it will start to look like that.
Inflation has several effects for farmers and ranchers.
“Inflation creates a lot of price uncertainty. It creates a disconnect between long-term and short-term prices. It creates a lot, in a way, of relative price chaos that you don’t necessarily have when things are stable,” he said. “It also creates a disconnect between long-term and short-term lending. However, long-term lending rates are also rising now, and the 30-year mortgage rate increases relatively rapidly.
He expects inflation to persist for a year or two.
“Even if the Fed starts pulling us back towards what should be the normal money supply growth rate, there is just a lot of liquidity in the market that needs to work its way through the system. And we certainly hope the Fed will start paying attention to the money supply, and hopefully they’ll recognize that’s really the indicator they need to pay attention to,” Cryan said. “Stopping inflation is really essential. It’s important that we take care of that. There may be some short-term pain in getting this over with, but it won’t be anything like long-term pain if we don’t.