https://www.wsj.com/articles/food-prices-to-keep-going-up-as…
**Food Prices to Keep Going Up, as Costs Surge**
**Kraft, Tyson, McDonald’s owners say higher fuel, labor and ingredient expenses are driving inflation**
**By Jaewon Kang and Annie Gasparro, The Wall Street Journal, June 11, 2022**
**...**
**From farmers and factories to grocery stores and restaurants, many executives say they are experiencing jaw-dropping cost increases for labor, packaging, ingredients and transportation. The rise of fuel prices is making it more expensive to produce and sell food. Food retailers and restaurants have said they are passing along some wholesale price increases and additional costs to consumers...**
**Russia’s invasion of Ukraine, one of the world’s top grain-producing regions, is lifting the price of pantry staples, cooking oils and livestock feed for meat. Bad weather affecting other big crop-producing countries, including in parts of South America, Australia and India, is fueling the global crunch, too....Meat prices have surged over the past year as processors have said their factories remain short-staffed, so they can’t slaughter as many cattle, hogs and chickens....The highly pathogenic avian influenza outbreak that has led to the death of nearly 40 million birds has also sent the price of eggs and turkey products higher in recent months...** [end quote]
None of these real-world root causes of food price inflation are responsive to interest rates. But there will be immense pressure on the Federal Reserve to reduce inflation by raising interest rates (their only tool).
Food price inflation is a dinner-table topic of conversation. The less income a household has, the worse they are hurt by rising food prices. It’s a hot button.
As households, we will have to adapt to food price inflation as we did in the 1970s, when manufacturers shrunk package sizes to keep the price increases less. (Screwing up recipes in the process.) Many households will cut back on meat and eating in restaurants.
As investors, we will have to adapt to the Fed raising interest rates with minimal direct impact on inflation. That will eventually cause a recession that will reduce demand. Stocks, bonds and all other asset prices will be depressed as interest rates rise.
Wendy