The war with Iran is causing upheaval in the commodity markets. The early volatility has seen an increase in the price of corn and soybeans, but has included sharp setbacks. More concerning is the risk presented to U.S. farmers and consumers as the conflict in the Middle East drives energy and fertilizer prices higher. The chairman of the Federal Reserve addressed this during his press conference on Wednesday. Jerome Powell says the impact is concerning.
“There are just lots of ways that oil and derivatives of oil get into the production and transportation of many, many things. So, those are big effects in headline inflation, but things like that leak into the core as well. And the effects may not be as big, but they’re quite real and there, they’re material. So, we are aware of that, and we’re watching it, but, you know, we’re right at the beginning of this, and we don’t know how big it will get, we just don’t know how big this will be, and how long it lasts. You know, it may or may not be something that really makes a big imprint on the U.S. economy. We’re just going to have to wait and see.”
While oil price spikes immediately drove up headline inflation, which includes volatile energy prices, those costs eventually “leak”, says the chairman, into core inflation. It strips out energy and food prices as the cost of producing other goods rises. For corn and soybean growers preparing for spring planting, that ‘wait and see’ approach means keeping a very close eye on how headline inflation and rising fuel and fertilizer expenses will impact their bottom line in the coming weeks.