> there isn't much sign of general inflation, which is what you'd expect if the key driver were money supply.
It's too early for much of the newly printed money to have spread out into the economy. We won't know how much inflation printing the money caused for some years, since it will take a while for the rest of the economy to adjust to the new money supply.
Why not? Money doesn't instantly magically transport itself to all parts of the economy. First the people who get the printed money have to spend it--and many of them haven't even gotten it yet. Then the ripple effects of the spending have to propagate through the rest of the economy. That can take a while.
> if it was that would be another argument against the claim that food prices were an effect of monetart-policy-driven inflation
At this point in time I would agree; there hasn't been enough time for people to have spent enough of the printed money on food.
However, since a fair chunk of the printed money is going to people who need it for basic living expenses, I would expect a fair chunk of it to be spent on food over the next few months, which will probably drive food prices up further--or will offset at least some of the price decreases to be expected as supply chains adjust.
> If monetary policy had that much lag there'd be little point to it at all.
This would come as a great surprise to the Federal Reserve board members and all of the economists who are always pointing out that the Fed has to base policy on estimates of what things will be like some time in the future, since monetary policy has a time lag. Try Google searching on "federal reserve monetary policy time lag" and see what hits come up.
> Try Google searching on "federal reserve monetary policy time lag" and see what hits come up.
Funny that when I did that I found pieces saying exactly what I already knew: that monetary policy changes tend to measurable effects quickly but still take a significant time to reach their peak effect (6-8 quarters), which is what the “policy lag” refers to, and then have reduced effect past that point.
Policy lag doesn't mean that it takes a long time for monetary policy to start having noticeable impacts, which is what was suggested.
> monetary policy changes tend to measurable effects quickly
Measureable effects on interest rates quickly. The reason for that is simple: the interest rates that are measured are usually tied directly to the Fed's rates (usually with an offset that depends on the particular kind of loan) and thus move with them.
But we're not talking about interest rates here. We're talking about prices of commodities like food, which are part of the things that "lag".
> it takes a long time for monetary policy to start having noticeable impacts, which is what was suggested.
What was suggested is that it takes time for monetary policy to start having noticeable impacts on food prices (and more generally prices of commodities).
People have to do stuff in the short term to adapt to new conditions. There's a lot of disruption right now simply because people and stuff have to be moved around. That's not the same thing as a long term shortage of anything, but it has a real cost in terms of physical goods or labor or money. Why should this be permanent? If more flour needs to be allocated to home use than restaurants, restructuring the supply chain is not something that goes on forever, whether restaurants mostly reopen or not.
It's not impossible to disentangle inflation from a general supply shock such as COVID. The price of oil, for example, hints that something besides the money supply is at play.
Has anyone squared the circle on why food prices are rising in spite of collapsed restaurant demand? I understand the constraints around meat packing (although given the monopolies in meat production, I’m still a little skeptical that it’s all based in reality), but why other goods?
One reason is that the food supply system is comprised of retail and commercial sectors. The commercial demand collapsed as restaurants & institutions closed, while the demand at the retail level skyrocketed when people panic-shopped.
The packaging needs of the two sectors are different - retail packaging must have the nutrition & ingredients panels on it, while commercial packaging would typically only have it on the carton.
To add on to this, the supply chains/logistics are somewhat different as well on top of already-stressed delivery infrastructure, so there are multiple bottlenecks in getting food to retail shelves. When demand skyrockets without warning (like it did), it's not really possible to immediately scale up, so you get shortages like we're seeing and thus food prices go up (temporarily) like you would expect.
Well, there are two supply chain disruptions in play.
One, restaurant demand is switching over to consumer demand, and the packaging and distribution is very different -- you don't buy 50lb sacks of pancake mix, half a pallet at a time, I reckon.
Secondly, there have been food processing plant closures. This has a number of ripple effects. With the plant closures, farmers have been forced to destroy market-ready animals, dump milk, etc. So there is not only less processing capacity, but less input available when the plant opens again. I had a phone call from an aunt in rural Iowa yesterday -- she reported paying more than US$7/lb for ground beef... in a store literally 5 miles from my brother's beef finishing feedlot. The insanity of that situation boggles me.
In Canada, the potato and/or dairy farmers associations are destroying their crops to prop up prices since fast food demand disappeared and there was such excess. Not sure what the difference between that and price fixing is but it seems to be a common practice. I first heard about it after reading the Grapes of Wrath
One of the problems with modern agriculture is that sometimes the cost to bring your product to market exceeds the cost the market is willing to pay. In that case, its not that uncommon for product to be destroyed to bring supply and demand closer together.
There's so much more demand for groceries, dairy and poultry because people aren't eating out.
There is now more pressure to produce and supply goods that are meant for in-house eating.
All the packaging and supply chain optimized for eating out has become useless and needs to be reoriented towards home eating. Until this is done on a massive scale, prices will remain high.
Also, as demand is rising for home foods, producers have a newly gained pricing power and they sure are fully utilizing it.
Also, production is low in general because of massive layoffs of farm work. Farm hands are not getting visas to come and actually harvest what farmers have been cultivating.
Altogether, the prices are rising fast and nobody knows where it'll go.
Doesn't it make sense that the costs of changing how supply chains work are factoring in to everything?
Like, people want flour. There's probably plenty of flour, but at first the grocery stores didn't have a way to sell what the restaurants aren't using. There's a cost to changing how it is packaged and distributed.
This isn't inflation, because it isn't a new baseline.
recent articles in US Media about a price-fixing investigation by the "Big Four" meat packers.. just what the parent comment says, minus the meat specific part..
look for "Cargill the worst company in the world" written by a US Congressman (!) for more background
“In my 40-year long career in Congress, I took on a range of companies that engaged in abusive practices,” former congressman and Mighty Earth Chairman Henry Waxman writes in the report. “I have seen firsthand the harmful impact of businesses that do not bring their ethics with them to work. But Cargill stands out.”
cant explain why this is happening but can confirm meat industry workers are getting boned hard. Family in indiana working at tyson plant, my family and co-workers are getting sick but still have to work.
Basically it's a choice they have to make. Go to work, risk getting sick, but make $$$ and feed family. Or you can be safe, not go out to work , but family will have no food. It's an easy choice to make because your family needs to eat.
I predicted we'd see rising prices for anything provided by essential workers: food, shipping, etc. I think if the lockdowns and pandemic continues, we'll continue to see that.
The limit case is everyone stays home. We print money to allow people to buy food and medicine. Only essential workers contribute to the economy and do productive work. In the limit case, we see high inflation, large economic gains to essential workers, and a big hit to everyone else.
We're no where close to the limit case yet, but a modest rise is expected. With a big chunk of our economy shut down, the food sector is bigger, in relative terms.
It sounds like they're raising prices in order to slow demand, so that the system can catch up. I'm curious if this will lead suppliers, etc. to go back to something like "just in time...but a few extra weeks just in case"
> The Labor Department reports that the 2.6% jump in April food prices was the largest monthly increase in 46 years. Prices for meats, poultry, fish and eggs increased the most, rising 4.3%.
