The Quarterly: Inflation Abundance, Commodity Shortage

Despite ongoing impacts from Russia’s invasion of Ukraine and lingering supply chain effects from the pandemic, the U.S. economy remains incredibly resilient. So resilient, in fact, that consumers’ seemingly unbreakable willingness to spend is vexing the Federal Reserve and causing it to aggressively raise interest rates to stamp out inflation. Rate hikes will continue into 2023 as a result and the outlook for the coming year grows increasingly gloomy.

In contrast, the energy and agri-food sectors have gained unexpected levels of pricing power as supply shortages now appear to be medium-term challenges. Agricultural production and transportation issues are still most severe in the Black Sea, but drought in Europe, Asia, and the Americas is making grain supply and logistics all the more uncertain. Hurricane Ian and low Mississippi River levels have also compounded worries about availability of farm inputs. And global natural gas demand is now poised to outstrip supply for years as the world gears up to replace Russian supply and build out renewable infrastructure. Risks and uncertainty remain exceptionally high, but elevated commodity prices also offer opportunities.

Finally, enormous implications rest in the balance amid tense negotiations over water rights on the Colorado River. Farming communities throughout the southwest anxiously await the results as a third La Niña weather year portends more drought.

And all of this is happening with mid-term elections just weeks away, and Congressional control up for grabs. It will not be a quiet end to the year.

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