Food Inflation and Higher Input Costs May Ease but Will Still Persist Through 2022

Rising prices are impacting every aspect of the food and agriculture supply chain and that may not change dramatically through the balance of 2022 according to officials with the Federal Reserve Banks of Minneapolis and Kansas City.

The two held a symposium to look at the increased input costs on the farm and well as higher food prices.   Officials say these are consequences of recent upheavals in global commodity markets with the war in Ukraine and rising costs of food processing, transportation, and labor shortages.   And the outlook isn’t expected to improve for the 2023 crop season, which will cut into farm profitability. 

Nathan Kauffman, VP of the Omaha Branch, Federal Reserve Bank of Kansas City says, "According to USDA farm productions costs are expected to be about 25% higher this year in 2022 than they were in 2020, fertilizer costs alone are anticipated to be on average about 50% higher than just 1 year ago."

Kauffman says food prices are up nearly 10% this past year, but only 10% of that rise is due to higher commodity prices. The rest is due to costs associated with packaging, transportation, energy, processing, distribution and food service.  So even if there is a rebound in production, those other costs remain high.  He says, "Even if agricultural prices do ease food prices may not necessarily come down as quickly given the importance of to the factors that also effect the cost of food."  

USDA is forecasting food inflation to fall from current levels, but they can’t project just how much prices will cool because of the unknowns tied to retailer and wholesaler costs.