Agflation

What Is Agflation?

Agflation portrays the phenomenon when food prices rise more quickly than the prices of different goods and services, due to the developing demand for crops as both food and for use in biofuels.

The word is a portmanteau of the words "agriculture" and "inflation."

Grasping Agflation

Agflation happens in light of the fact that demand progressively dominates supply, raising the price to "swelled" levels. One form of inflation, demand-pull inflation, results from monetary and fiscal policies that animate demand to support economic growth.

One more form of inflation, cost-push inflation, is brought about by supply deficiencies that increase prices. Agflation is an illustration of this type of inflation. As costs for agricultural goods rise, maybe in light of crop deficiencies due to awful weather conditions influencing the harvest, food prices increase.

Now and again, demand for certain agricultural commodities like soybeans, sugar, and corn has flooded even more quickly, as processes and advances utilizing these products have been progressively applied to fabricate alternative fuels (i.e., biofuels) for cars and trucks.

The Impact of Agflation on Overall Inflation

Even when food crops are not used to produce alternative fuels, their prices might be subject to inflation on account of the inclination of consumers to change their food buying propensities. Therefore, this demand substitution effect can impact all food prices.

For instance, in the event that corn is in high demand to fabricate alternative fuels, for example, corn ethanol, food companies might switch to other more affordable feed grains, like rice or wheat, to try to reduce costs for consumers. However, food-related demand that movements to different crops doesn't be guaranteed to bring down overall food prices. The extra requirement for what might have been more affordable substitutes actually makes up pricing pressure.

In spite of the fact that financial experts assess overall inflation by measuring prices utilizing reports, for example, the Consumer Price Index (CPI), the impact of inflation contrasts in different global markets in view of specific commodities. The per-capita cost of food as a percentage of the overall cost of living is less in developed countries like the U.S. than in less developed areas of the world.

Consumers Feel the Pain of Agflation

The impact of agflation shows up in different segments of the Consumer Price Index distributed by the U.S. Department of Labor Bureau of Labor Statistics (BLS).

For instance, while taking a gander at the year percentage change from November 2019 to November 2020, the CPI rose 1.2 percent. Broken down by segment, food prices went up 3.7 percent — or three times a bigger number of than the overall CPI. In a similar time span, energy went down 9.4 percent while all things minus food and energy just rose 1.6 percent.

While overall inflation rates are usually used to break down the vigor of global economies, the persevering significance of agriculture makes agflation an essential part of measuring price trends, and the ability to feed a developing world.

Highlights

• At the point when agflation is high, a greater amount of household income is required for food and agricultural products.
• Agflation happens when food prices increase at a greater rate than the prices of different goods and services in an economy.
• While general inflation rates are usually used to break down the strength of global economies, the significance of agriculture makes agflation an essential part of measuring price trends.