Sorry, millennials, no more $20 avocado on toast at the local hipster restaurant. Sorry, everyone on a diet, no more good kind of fat to offset the butter, margarine, and olive oil. Sorry, double-dippers, no more putting your entire mouth into the dip (for the uninitiated, this is a Seinfeld reference). U.S. consumers will either pay more for avocado or be unable to find the popular food item at the neighborhood supermarket.
Holy guacamole! What the heck is happening? After an American plant safety inspector in Mexico was allegedly threatened while performing an inspection at a facility, the U.S. government suspended imports of Mexican avocados, except from the state of Michoacan. The U.S. Department of Agriculture (USDA) did not verify how long the suspension would last, but some industry experts believe it could be several months before the restrictions are lifted.
This is terrible news for restaurants and grocery stores that were taken aback by the abrupt decision. The United States already imports about 80% of its avocados from south of the border. Over the last 20 years, U.S. consumers have increased their consumption of the delicious food item to between eight and ten pounds, adding the fruit (or vegetable, take your pick) to their dynamite rolls and tacos.
While the decision blindsided everyone, the somewhat positive news is that California’s avocado production is up about 15% from last year, and the U.S. is importing more from Peru. Will it be enough to limit the supply shock? The average price of a Haas avocado is already about $1.50, so it is unlikely that costs will ease anytime soon.
No, avocado for you! And, yes, this is also a Seinfeld reference.
California Payin’ – And the Gas is High
As of Feb. 18, the national average for gasoline prices was $3.528, up 37% from the same time a year ago. But gas prices are not equal as motorists pay more or less at the pump depending on where they live. For example, drivers in Missouri are paying $3.18 per gallon. Or, if you are residing in Oklahoma, you can expect to pay $3.20 a gallon.
California, which can seem like a foreign country compared to the rest of the nation, is not so fortunate. The average price of gasoline in The Golden State is $4.728, an all-time high, according to American Automobile Association (AAA). In some parts of the state, consumers are paying upwards of $5.59.
Gasoline prices continue to soar because energy commodities remain elevated. A barrel of West Texas Intermediate (WTI) crude is around $90. But why is it so expensive in the nation’s most populous state? Environmental regulations, hefty taxes, strong demand, routine supply disruptions, and a paucity of public transit alternatives are the factors contributing to the sticker shock.
Because President Joe Biden and his administration are desperate to lower prices, the White House is working closely with Iran to establish a renewed nuclear agreement. By doing this, Tehran would be able to unleash as many as one million barrels of crude per day into global energy markets, which explains why the futures market has declined in recent sessions. Of course, it would be easier to encourage domestic oil and gas companies to “drill, baby, drill,” renewing America’s energy domination status. But the Oval Office believes depending on foreign oil is the correct course of action.
A Bullard in a China Shop
James Bullard, the Federal Reserve Bank of St. Louis president, is going scorched earth in his round of media interviews and talks. Unlike his colleagues who are taking a more diplomatic approach to diminish investor consternation, Bullard is telling everyone who will listen that inflation could spiral out of control, requiring aggressive central bank action. This is spooking institutional and retail traders.
Speaking on a panel at Columbia University on Feb. 17, Bullard reiterated his suggestion for a 100-basis-point worth of hikes by July. He asserted that there is too much of a hive-mind anticipation that rampant price inflation will dissipate this year, which could be dangerous and leave the Eccles Building in a vulnerable position. Bullard said during the discussion:
“We’re at more risk now than we’ve been in a generation that this could get out of control. One scenario would be a new surprise that hits us that we can’t anticipate right now, but we would have even more inflation. That’s the kind of situation that we want to make sure it doesn’t occur.
Overall, I’d say there’s been too much emphasis and too much mindshare devoted to the idea that inflation will dissipate at some point in the future. We’re at risk that inflation won’t dissipate, and 2022 will be the second year in a row of quite high inflation. So that’s why given this situation, the Fed should move faster and more aggressively than we would have in other circumstances.”
In a separate interview with CNBC, Bullard said the quiet part out loud: The quantitative tightening (QT) that the Fed has embarked upon since November is not as tight as analysts and the business media are suggesting. “It’s not tight policy. Don’t let anybody tell you it’s tight policy,” he said. “It’s removal of accommodation that will signal that we take our responsibility seriously.”
Should the economy slow down, which has become the consensus among Wall Street analysts, from Goldman Sachs to Morgan Stanley to the Atlanta Fed Bank, could the Fed skip a rate hike or even pull the trigger on a rate cut later this year? When the central bank has been behind the curve since the start of the coronavirus pandemic, nobody should be surprised what happens in the economy or at the Fed.
~ Read more from Andrew Moran.