Food Inflation Set To Surge: Economist Warns How Bad It Could Get | Michael Madowitz

Summary

• The US economy entered the current oil shock already showing signs of strain, with flatlining labor market growth, moderate inflation, and downward revisions to recent jobs, GDP, and inflation data.
• The Strait of Hormuz closure has caused a severe diesel crisis; diesel prices have risen sharply ($1.34/gallon in a month to ~$5/gallon), which is critical as it powers the trucking industry and agricultural equipment.
• There is a significant lag effect: higher diesel and jet fuel costs will pass through to consumer prices (especially food) over weeks, creating a secondary inflationary wave even if gasoline prices stabilize.
• Food inflation was already a concern pre-crisis (USDA forecasted 2.5-3.7% for 2026), and the shock to fertilizer production (dependent on Gulf natural gas exports) compounds this risk, making the ultimate price spike size and timing uncertain.
• Increased US oil production does not insulate consumers from global price shocks; oil is a global bathtub market, so domestic production doesn't decouple prices. However, the US is partially insulated from the parallel natural gas shock affecting Europe.
• The labor market slowdown in 2025 is attributed partly to restrictive immigration policy, which reduced the supply of young workers, creating downward pressure on growth and upward pressure on inflation.
• There is strong skepticism that "drilling our way out" of energy-driven recessions is effective, as oil shocks contributed to six of the seven pre-2020 recessions.
• Institutional independence is a concern: the firing of the BLS commissioner was a bad move, but the current nominee profile suggests data integrity may be maintained. A longer-term risk is declining survey response rates and underfunding of statistical agencies.
• The Federal Reserve's near-term independence is not in grave doubt, but the nomination process for future chairs lacks transparency, creating future uncertainty.