Nate Bruce, Farm Business Management Specialist, nsbruce@udel.edu
The consumer price index (CPI), or most referenced as the inflation rate, fell to its lowest value since March 2021 during the month of May. The figure below shows CPI for all items and items less energy and food, going back to 2020 before the covid pandemic. The greyed area in the figure shows a period of recession at the beginning of the pandemic. The US Bureau of Labor and Statistics will release the June CPI report on July 12th. Producers have felt the impacts of inflation over the past couple years, facing higher costs for inputs and having to adopt conservative financial management strategies.
To combat inflation, the Federal Reserve Bank has raised its benchmark interest rate 10 times throughout 2022 and 2023. Below is a table that shows all 10 of the benchmark interest rates from 2022 and 2023. The Federal Reserve has a CPI target of 2% and aims to avoid a recession by not hiking rates too high. The Federal Reserve is hoping to create a soft landing and did not increase the rate in June. The June CPI report will be very important as the Federal Reserve is taking a “wait and see” approach moving forward.
Increasing interest rates can have drastic impacts on the farm, including depressing commodity prices. University of Wisconsin Extension has a great article on how interest rate hikes can impact producer farm loans. Here is a link to the article:
https://farms.extension.wisc.edu/how-rising-interest-rates-may-affect-ag-loans/