The Dells, Wisconsin
An ag banker who was attending the annual Wisconsin Agricultural Bankers Conference in the Dells, WI, asked a very pertinent question for today’s economy, ”How will the government, consumers and businesses deal with increasing interest rates and inflation?”
First, let’s start with inflation. Many households and farmers are facing pinched budgets because of fuel, medical cost and cost of materials. As a result, many consumers are driving less. Convenience store owners and restaurants are finding fewer people eating out and shopping. I have noticed less traffic on key interstates as well.
The dairy industry is seeing less expansion despite high milk prices. This is because the cost of new buildings and equipment is 25-50% higher than a few years ago.
Health care costs are increasingly becoming budget busters in the household and small business structure. More companies offering benefits are increasing the deductibles or deciding not to offer this benefit. Health care premiums are increasing 10-15% annually, or doubling every six years.
Increasing interest rates will be a challenge from the household to the government. For example, a 1% increase in rates represents $276 less monthly spending money in the typical American household. On the government side, if they spend more for interest then you can expect the typical consumer and businessperson to spend more also.
Critical Numbers to Watch
Consumer: $2.50/gallon gasoline price average
Housing: 7% long-term interest rates
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Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.
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