The “blind optimism” that greeted 2021 “has given way to resignation” amid the still-unresolved pandemic and related supply crunches and inflationary cost pressures that persist into 2022, says Farm Credit Canada in a recent precursory look forward. 2021 ended with a resurgent of virus cases, despite no spike in deaths and a strong vaccine uptake, FCC dolefully points out.
The unrelenting supply-chain uncertainty and “untenable” farm input and feed cost increases could be compounded this year if the Bank of Canada counters rapid inflation with an interest rate hike, possibly hitting farmers on borrowing costs.
But it’s not all gloom for 2022 in FCC’s estimation. As reasons for “well-founded hope,” FCC highlights cattle prices that are expected to remain above 2020 levels; a recent retreat in shipping cost indicators from last year’s peak; and crop input costs the agency anticipates will “start to subside” this year.
High inflation ultimately spurs interest rate increases. It’s a key concern of economic forecasters who acknowledge being majorly incorrect about inflation a year ago.
“At the start of the year, the consensus among private sector forecasters and central banks in the U.S. and Canada, and even Europe, was for 2% inflation or less in 2021 … Whoops,” writes BMO Chief Economist Douglas Porter in his recent 2022 outlook.
To counter the inflationary pressure, “central banks are going to need to forge ahead (with interest rate increases) even in the face of potentially serious headwinds for growth,” he predicts. In its 2022 forecast, the TD Bank forecasts that the Bank of Canada will hike the overnight rate to 1.75% by year’s end.
Porter notes that Germany jumped to its current 6% inflation rate at a speed not seen in almost 70 years, rising from -0.7% a year earlier. He also forecasts a firming Canadian dollar amid rising oil prices. A more robust loonie would have implications for crop producers because commodity prices are set in U.S. currency on the Chicago Board of Trade.
