News & Insights
Every election cycle has its own peculiar trope at the center of the narrative, the very tangible thing that brings swirling abstract narratives into recognizably defined three-dimensional space. For the 2024 campaign, that thing was the price of eggs. The complexities of global supply chains, the arcane accounting practices for billions of dollars of government expenditure, the extreme distortions of consumer demand trends during and after the Covid pandemic – all the many variables involved in the highest levels of inflation experienced since the 1970s boiled down to one simple formulation: Have you seen the price of eggs lately? Yes they had, and they were not happy about it, and they made their point on November 5.
The Chickens and the Eggs
Given the prominent place afforded last year to that one food category as a proxy for the entire inflation story, it is perhaps an unfortunate coincidence that eggs are back in the news recently for reasons unrelated to the inflationary forces at play for much of the past three years. The spread of avian flu has caused havoc among the chicken farms from which our Grade-A cartons begin their long journey to our kitchen tables. The price of eggs today is roughly double what it was a year ago, and soared by 15 percent in the month of January alone. The flu has necessitated the slaughter of millions of chickens, drastically reducing supply, and the magnitude of the resulting price increases for eggs accounted for fully two-thirds of the total increase in food prices last month, according to the latest Consumer Price Index report issued by the Bureau of Labor Statistics this past week.
But it’s not just about eggs. The Fed doesn’t pay as much attention to the volatile categories of food and energy products as it does to so-called core inflation, the more stable baskets of goods and services like apparel, medical care and shelter. The problem is, these categories are proving to be stubborn as well.
Gimme Shelter
Non-food and energy services, in particular, have not come down at the rate the Fed was expecting to see a year ago. For the last twelve months, prices for shelter (rent and owner’s equivalent) have increased 4.4 percent while transportation services, of which airline travel is a major component, have gone up 8.0 percent. That has kept the core CPI number (the gray dotted line in the above chart) stuck at or around 3.3 percent since the middle of last summer. The Fed went ahead with its first rate cut in September regardless, thinking that the numbers would continue to decline, but here we are in February and 3.3 percent is still the number for core inflation.
And That’s Without New Tariffs
The seeming intractability of inflation alone would strongly suggest a continued pause by the Fed, with no rate cuts likely for the foreseeable future. But that, of course, doesn’t take into account whatever tariffs are eventually going to make their way into law. As we noted in our commentary last week, the only consistent aspect of the new administration’s tariff policy so far is its inconsistency, with policymakers saying one thing one day, watching how markets react, and saying something else the next day (or the next hour). The word in vogue this week has been “reciprocal tariffs,” which sounds like a sort of tit-for-tat policy aimed at matching the tariffs other countries set on products we currently import. Or is it? Does it include things like the 20 percent VAT applied to many European exports? How about structural barriers on products from places like Japan and India? And when? The latest indications point to April (maybe) as the likely start date (unless something else comes up in the meantime, and notwithstanding carve-outs and exemptions and all the rest of the baroque ornaments of this administration’s approach to tariffs).
All this remains to be seen, and markets have yet to exhibit any overriding concerns. Meanwhile, interest rates are likely to remain where they are, and vegan baking recipes that call for egg substitutes are likely to grow in popularity.