The week in review
- FOMC minutes signaled balance sheet reduction pace of $95B/mo.
- Light vehicle sales dropped to 13.3M from 14.0M
- ISM Services PMI rose to 58.3 from 56.5
The week ahead
- Retail sales
- Import prices
Thought of the week
Apart from the horrific direct human impacts of the Russian invasion of Ukraine, its indirect effect of boosting commodity prices in general and food prices in particular will have serious consequences for consumers globally. Russia and Ukraine together account for nearly 30% of global wheat exports and 18% of corn. Russia is also a leading exporter of fertilizer, which could have important implications for a broad range of crops. The USDA recently revised its annual forecast for “food at home” inflation to a range of +5.5%- -6.5% by the end of 2022, after prices already rose by a record 6.8% y/y in February.
Food inflation is regressive since lower-income households spend more on food as a share of total spending than higher-income households, as we show in the chart. These households may have some relief though, as recent wage gains have been highest for the lowest paid workers. We believe wage growth will prove to be sticky while food and energy inflation should prove more transitory. Therefore, it may be that lower-income households will eventually be left in a better position, with stronger wage growth as food and energy inflation fades. However, while lower-income households in the U.S. may have some protection, the same cannot be said for low-income households globally. While food accounts for 12% of consumer spending in the U.S., it accounts for 40% in sub-Saharan Africa, for instance. Tragically, some of the heaviest economic impacts of the war will fall on the poorest populations globally, until hostilities subside or global agricultural production expands to fill this supply gap.