Sunny days ahead?

Weekly Updates

Consumers’ views of inflation are shaped by the price of things they buy frequently. Everyone buys food and fuel on a regular basis. As US gasoline prices have risen to over USD 4 per (US) gallon, the increase in fuel prices is very obvious. Food prices are now coming under scrutiny, with concerns about a rapid increase in the cost of fertilizer and the possibility of physical shortages.
Fertilizer manufacture is an energy-intensive process, making rising energy prices relevant. Petrochemicals are also used in the manufacture of some fertilizers.
Fertilizer can be a large share of farm costs. However, farm costs are a small share of developed economy consumer spending on food. Few consumers buy a bushel of wheat—they want it processed and packaged into a loaf of bread. Although fertilizer costs are 30-40% of operating costs for growing wheat, fertilizer costs are typically 2% to 3% of what US consumers spend overall on food.
An additional concern is that less fertilizer will be available during the crop planting season, causing smaller harvests. However, fertilizer is only one part of a complex growing process. During the 2022 fertilizer price spike, UK farmers used 27% less fertilizer for key crops, but output rose 2.4%. A sunny summer can offset fertilizer effects.