What Is Agflation?

Agflation refers to the trend where food prices increase at a faster rate than prices of other goods and services. This inflationary pressure is driven by the rising demand for crops, both for consumption and for biofuel production.

The term itself is a blend of “agriculture” and “inflation.”

Understanding Agflation

Agflation occurs due to the imbalance between supply and demand, leading to an inflated pricing environment. It is a manifestation of cost-push inflation, where supply constraints, like crop shortages caused by adverse weather conditions, drive up agricultural costs and subsequently food prices. Another contributing factor is the surge in demand for certain crops such as soybeans, sugar, and corn, driven by their use in manufacturing biofuels for vehicles.

The two primary forms of inflation—demand-pull and cost-push—play a role in agflation, with the latter being more prominent in this context.

The Impact of Agflation on Overall Inflation

Even when food crops are not redirected for biofuel production, consumer behavior shifts can trigger inflationary pressures on food prices. For instance, substituting corn with other grains due to its demand for fuel production does not necessarily alleviate the overall rise in food prices.

Economists gauge inflation using metrics like the Consumer Price Index (CPI), but the impact varies across global markets. Developed countries like the U.S. allocate a smaller portion of their cost of living to food compared to less developed regions.

Consumers Feel the Impact of Agflation

The effects of agflation are evident in various segments of the Consumer Price Index reported by the U.S. Department of Labor Bureau of Labor Statistics.

An analysis from November 2019 to November 2020 revealed that while the overall CPI increased by 1.2 percent, food prices rose by 3.7 percent, significantly outpacing the general inflation rate. In contrast, energy prices decreased by 9.4 percent during the same period.

As a critical metric in measuring price trends and the global food supply chain, agflation is an important aspect of economic analysis due to its impact on consumers worldwide.