“I'm really, really mindful that the rear window on the economist automobile is pretty much crystal clear,” shared Cornell’s Andy Novakovic during the July 20, 2022, Hoard’s Dairyman DairyLivestream. “We have a good idea where we've been. From the front window, not so much.”

That was Novakovic’s opening comments as he tried to put a finger on what some of the driving factors of this inflationary period have been. With this windshield warning in mind, Novakovic highlighted energy and labor as causative factors of inflation, although he also was quick to warn that his perspective of how they will play out could be fuzzy at best.

“Doing diagnosis and doing prescription is a tough job for us. Even though we know the theories, it's not so easy to always sort it out, in my opinion,” he summarized.

According to Novakovic, energy is the single biggest category pushing up all prices. Because energy is used for everything, it affects every price.

“One question I would ask is how exactly will higher interest rates help us push down energy costs? I struggle with figuring out how that's supposed to work,” Novakovic posed to the webcast audience.

In his opinion, the energy trouble can be either qualified as systemic or episodic. In the case of energy supply, Novakovic thinks that high energy prices are mostly episodic and caused by Russia’s break of the supply chain.

“Is this about Russia fiddling around and disrupting the supply of petroleum products and when they stop fiddling around it all goes back to good?” he asked. “My feeling is that it's not really systemic, but if the war stops tomorrow, all the pieces wouldn't go back quite into place either.”

Labor is systemic

On the other hand, Novakovic described the changes in labor availability as squarely in the category of systemic.

“People have said, ‘I'm not willing to provide as much labor for as much as you used to pay me. I want more income; I want more benefits.’ I don't see that changing one iota,” the seasoned economist predicted.

With all this in mind, Novakovic posed one final analogy to try to help listeners understand what to expect moving forward.

“Getting a better grip on what's driving inflation and what we can do about it is one of our challenges, and I think sometimes we end up with one foot smashing down on the accelerator and one foot smashing down on the brake,” he concluded. “Then, we’re wondering which one is going to win. Clearly, interest rates are smashing down on the brake, but I'm not sure if we've really figured out what's going on with the accelerator.”

To watch the recording of the July 20 DairyLivestream, go to the link above. The program recording is now also available as an audio-only podcast on Apple Podcasts, Spotify, Google Podcasts, and downloadable from the Hoard’s Dairyman website.

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(c) Hoard's Dairyman Intel 2022
August 15, 2022
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