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This could solve the increase in the cost of food (Opinion)

2022-01-27T02:34:05.217Z


Food prices are on the rise, hitting hardest those who can least afford it. This proposes Dana Peterson to solve it.


The Fed prepares to raise interest rates 1:21

Editor's note:

Dana Peterson is executive vice president and chief economist at The Conference Board.

The opinions expressed in this comment belong solely to the author of it.

(CNN) --

Prices are rising on just about everything, hitting everyone's pocketbooks.

But the rising cost of food, in particular, hits especially hard, exacerbating wealth and income disparities between the richest and poorest Americans.


The Federal Reserve has been patient throughout the COVID-19 pandemic about reaching full employment and helping the broader set of Americans.

Now, it is turning towards fighting inflation.

This change is critical to help control rising prices in virtually every category and will require a well-communicated and measured plan to raise interest rates.

  • The inconvenient truth about food prices in 2022

One of the most watched categories is that of food, since the rise in prices affected the pockets of consumers, especially those who can least afford it.

Food prices in December 2021 increased 6.3% from a year earlier, according to the Bureau of Labor Statistics (BLS) Consumer Price Index.

This is the fastest pace of food price inflation since October 2008, when rising energy prices pushed up the cost of other staples.

Now, pandemic dynamics are driving inflation: sick workers, supply chain disruptions, transportation jams, and labor shortages, not to mention adverse weather events, have forced the price up. of food.

Food consumed at home is up 6.5% year-on-year, and prices of staples such as meat, poultry, fish and eggs are up 12.5% ​​year-on-year.

Fruit and vegetable prices rose in December to their highest level in 10 years (5%).

Restaurant food is also up 6% year-on-year.

And prices for full-service and limited-service meals and snacks (meaning takeout and delivery restaurants) have risen at the fastest pace on record, according to BLS data.

These rising prices exacerbate food insecurity.

According to the Census Bureau's Household Pulse Survey, 42 million Americans reported in early January that they did not have enough food because they could not afford it.

That figure is almost double what it was in April, as prices rose and stimulus payments (eg, checks, enhanced federal unemployment insurance) decreased or ended.

  • The pandemic pushed almost 100 million people into extreme poverty.

    Now they're fighting to get out

Food-insecure families typically have incomes below the poverty line, which is US$26,500 for a family of four, but food pressure is also felt by those with incomes slightly above that threshold or from the lower middle class.

Additionally, minority ethnic groups (black 17%, Hispanic 15%) are more likely than their white peers (6%) to cite food insecurity, according to calculations by The Conference Board of the Household Pulse Survey.

In a modern economy, no one should have a hard time eating because of rising food prices.

However, prices could increase even more.

According to The Conference Board C-Suite Outlook 2022 survey, US CEOs see rising inflation as their second biggest foreign-facing concern for the coming year, after labor shortages.

74% of respondents say they face upward price pressures on inputs (e.g. raw materials, other supplies, wages), 66% blame supply chain disruptions for rising costs and 50% cite labor shortages as a cause.

  • Most CEOs believe high inflation will continue until at least half of 2023

When asked how they would manage these rising costs, 56% of CEOs said their first choice would be to pass on price increases to customers. Only a third stated that they could absorb prices at markups (36%) or cut costs (32%) as a first option. Although these sentiments apply to all goods and services, this is likely to be especially acute for food producers and suppliers. As the lingering pandemic continues to disrupt supply chains and constrain labor supply, businesses may feel compelled to raise prices, especially for food.

The Fed's actions are the key to quick relief.

Interest rate hikes will slow down certain aspects of the economy, such as real estate activity, more intensely than others.

But rate increases should also help quell inflationary pressures, especially as temporary factors driving food price hikes, such as supply chain disruptions, persist.

  • The Federal Reserve prepares to raise interest rates

Raising interest rates from zero percent, and gradually reducing the size of the balance sheet, could also ensure that runaway prices, or even a price-wage spiral, do not hurt consumers and hamper businesses. Business.

Since the Great Recession, financial markets have been wary of the Fed's attempts to tighten policy.

Recall, for example, the “tantrum” of 2013 and the fire sale in 2018 when the Fed tried to “normalize” interest rates.

However, at this point financial markets should recognize that the Fed's efforts to fight inflation are in their best interest as it will stabilize the economy.

Policymakers at the Federal Reserve are signaling several interest rate hikes this year, and markets can get skittish after the first few.

However, using effective communication now, the Fed should try to convince investors that its actions are not to be feared, but rather are welcome to keep the US economy going and help many Americans whose spending is vital to continued growth.

Rising prices Wealth gap

Source: cnnespanol

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