If more households are spending on food and energy, will they modify their consumption patterns?
With consumer demand gradually weakening and business activity slowing down, the consequences of surging food and energy inflation might be weighing on the broader economy.
But what are the data showing and how are higher food and energy prices fueling the recession?
Paying More for Food
In July, food inflation hit 10.9 percent, the highest level since May 1979. Across the board, every food and beverage item listed on the Bureau of Labor Statistics’ (BLS) consumer price index has surged on a year-over-year basis, from bread to meat to coffee.
Food prices might not ease for quite a while after the Department of Labor reported that prices paid to U.S. producers for finished consumer goods increased close to 16 percent in the year through July. This represented the biggest increase since 1974.
Although commodity markets have eased in recent months, many agricultural products are rising again, including soybeans, wheat, corn, lean hogs, and coffee.
The United States, for example, is poised to harvest its smallest corn crop in three years.
This is terrible news for households already struggling to cover the cost of the grocery store bill.
According to a new study by Lending Tree, U.S. households are spending 28 percent more on food than they were a year ago as they spent an average of $407 a week on food in July, up from $318 in May 2021. In addition, the percentage of Americans reporting food insufficiency—not enough to eat—and relying on credit cards to pay for groceries has swelled.
Keeping the Lights on Is More Expensive
Despite crude oil and gasoline prices coming down, the energy index remains up 32.9 percent on an annualized basis. Fuel oil has advanced 75.6 percent, gasoline has climbed 44 percent, and electricity costs have jumped 15.2 percent.
The meteoric boost in energy prices forced drivers to change their habits.
Industry surveys show that motorists are driving less, combining errands, and doing fewer leisure activities because of the exorbitant cost of gasoline. Moreover, Energy Information Administration (EIA) data show that gasoline demand stood at 8.434 million barrels in the week ending Aug. 19.
Electricity costs have become so outrageous that 20 million households cannot afford to pay their monthly utility bills. Increasing power costs and declining purchasing power have led to a collective electric bill of about $16 billion in June, double the $8 billion in December 2019.
Businesses are also enduring the agony of higher utility costs.
In June, Century Aluminum Co., the second-largest aluminum mill in the United States, which accounted for one-fifth of domestic supply, had to idle its Kentucky plant because it could not afford the electricity bills.
Broader Effects on the Economy
Waning consumer demand might already be weighing on businesses, according to various metrics.
The S&P Global Manufacturing Purchasing Managers’ Index (PMI) eased to 51.3 in August. The Services PMI fell to 44.1, while the Composite PMI dropped to 45. Anything below 50 indicates a contraction.
Economists at S&P Global noted that higher input prices diminished consumer demand, with many firms reporting that clients were concentrating on inventories and essential spending more closely.
“August flash PMI data signaled further disconcerting signs for the health of the US private sector. Demand conditions were dampened again, sparked by the impact of interest rate hikes and strong inflationary pressures on customer spending, which weighed on activity,” said Siân Jones, senior economist at S&P Global Market Intelligence, in the report (pdf). “Excluding the period between March and May 2020, the fall in total output was the steepest seen since the series began nearly 13 years ago.”
The U.S. economy is two-thirds driven by consumer spending. If Americans are not purchasing goods and services because their main focus is on sustenance, be it filling up a tank of gas or putting bread on the table, business activity shrinks and the gross domestic product takes a hit.
Indeed, market analysts have been closely monitoring consumer demand data in recent months to find hints of a slowdown.
In July, retail sales were flat at 0 percent, while personal spending edged up at a lower-than-expected pace of 0.1 percent. The personal savings rate also dipped to just 5 percent, the lowest since 2008.
A new First Insight Report, titled “The State of Consumer Spending: Inflation Fueling Recession Fears,” found that consumers are reallocating their budgets. The report learned that rising food prices are the biggest concern for 68 percent of consumers. This has them cutting spending in other areas, including dining out, streaming services, electronic games, and gym memberships.
Even priorities and behaviors in consumers’ food budgets are changing, said Greg Petro, CEO at First Insight.
“As inflation remains at the highest levels seen in the U.S. since 1981, consumers continue to find different ways to afford things,” said Petro in a statement. “Putting food on the table remains consumers’ top priority. We are seeing reallocation of food budgets, with many consumers cutting back on fresh produce and spending less on name brand products.”
On the energy front, the World Bank warned in a June blog post that “energy price shocks” can trigger “immediate repercussions” on economic activity and then result in wider consequences, from fiscal and monetary policy to investment uncertainty.
“The restart is stalling in the U.S. as it bumps into production and labor supply constraints, and we believe U.S. activity is now set to contract,” said Tara Sharma, an investment strategist at BlackRock Investment Institute, in a note.
Will the US Become Europe?
While the United States might be in the beginning stages of a sharp contraction in business activity amid inflationary pressures in food and energy, Europe has become entrenched in this cycle for months.
Eurozone growth has slowed down considerably, with factories across the region reporting a significant decline in demand as rising energy bills and the broader cost-of-living crisis impacted customers’ finances. The Eurozone S&P Global Manufacturing, Services, and Composite PMIs slipped to 49.7, 50.2, and 49.2, respectively, in August.
A growing chorus of economists believes it is almost an inevitability that the eurozone and the United Kingdom will slip into a recession.
“The European Commission’s economic sentiment indicator took a dive in July, with forward-looking indicators pointing to an economic contraction in the second half of the year. Meanwhile, inflationary pressures are starting to soften, albeit only gradually,” wrote Peter Vanden Houte, the chief economist of the eurozone at ING, in a note.
With the Atlanta Fed Bank GDPNow already cut from 2.5 percent to 1.6 percent for the third quarter, elevated food and energy inflation is affecting the economy as consumers are tapped out and businesses slow down activity.
The only bright side is that cooling demand might be what cures inflation, which would be at the expense of the economy.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
About the Author
Andrew Moran covers business, economics, and finance. He has been a writer and reporter for more than a decade in Toronto, with bylines on Liberty Nation, Digital Journal, and Career Addict. He is also the author of “The War on Cash.”
Article cross-posted from our premium news partners at The Epoch Times.
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
