Feeding Inflation: The Geopolitics Behind Your Grocery Bill
Feeding inflation: The Geopolitics Behind Your Grocery Bill
The Federal Reserve's (Fed) June policy meeting delivered what many in the market had already expected - a mixed signal. The statement indicated slightly less concern about near-term growth and there were no convincing signs that rate cuts would arrive imminently. Growth projections were revised downwards for both 2025 and 2026; inflation was revised upwards through 2027, and unemployment forecasts were nudged higher. The picture forming is one of persistent stagflation risks, sluggish growth alongside sticky inflation, and the Federal Open Market Committee appears divided. Some policymakers foresee the need for at least two rate cuts this year, while others favour holding steady.
Fed Chair Jerome Powell also struck a cautious tone, stressing “patience” and uncertainty, particularly regarding food and energy prices. This restraint is understandable. Services remain the primary driver of inflation in the US and housing costs continue to exert upward pressure on the Consumer Price Index. Although headline inflation has cooled in recent months, food prices remain stubborn, climbing 0.3% month-on-month, which is the sharpest increase since 2021.
US Headline Inflation Breakdown (% change Year on Year (YoY))
Source: Artorius, Bloomberg
Soup, Steel, and the Hidden Costs of Tariffs
The current political risk of food inflation cannot be overlooked. Grocery prices, especially for basics like eggs, were significant contributors to the Democrats’ electoral challenges. With elections on the horizon again, the Fed may face increasing political pressure as it struggles to address rising costs and disruptions to the supply of goods. At the core of this current tension lies the Trump administration’s latest round of tariffs, which have expanded to include a broad array of imported agricultural products and industrial parts.
Take the humble can of Campbell’s Soup. It may seem a paragon of American self-reliance, yet it is representative of how globalised supply chains actually are. The Can Manufacturers Institute stated that around 80% of US tin cans rely on imported steel, specifically “Drawn and Wall Ironed” (DWI) packaging steel - an exceptionally high-grade material produced by only a handful of specialist mills globally. America does not produce enough of this steel domestically, and what it does produce typically comes from electric arc furnaces. These furnaces are not currently capable of producing consistent, defect-free DWI steel at scale, which is something only blast furnaces are currently capable of producing.
Traditionally, a large portion of this steel has come from Tata Steel’s plant in Port Talbot, South Wales. However, Tata recently shut down its blast furnaces, with plans to shift to lower-carbon electric arc production. Until the new infrastructure is in place, the steel being processed in the UK is melted and poured elsewhere. This is significant because US trade negotiators are insisting that only steel both melted and poured in the UK qualifies for tariff exemption.
In the absence of an updated US-UK trade deal, all imported DWI steel faces a 50% tariff - with no meaningful substitutes available in the US market. Previously, similar tariffs were eventually lifted on packaging steel due to the economic cost. But this time no such carve-out exists. The outcome? Higher costs for producers, squeezed margins for food companies, and more expensive soup on supermarket shelves.
This complex steel saga is just one thread in a much broader tapestry. Agricultural products are equally exposed. Trump’s latest tariff regime explicitly excluded oil, gas and metals like uranium or gold, but did not offer a single exemption for food imports.
Bloomberg reports that bananas, coffee, cocoa and other staples will now carry the full tariff burden - a minimum of 10%, with some surging to over 40%. For example: Vietnam - the largest global exporter of Robusta coffee beans, now faces a 46% tariff. Ivory Coast - the leading cocoa producer, faces 21%. Madagascar’s vanilla? A staggering 47%. American consumers accustomed to the year-round cheap availability of these products, will bear the brunt of this policy, as prices are likely to rise so that producers can maintain their profit margins.
Source: Unsplash
For further information on Campbell’s Soup, click here.
Food for thought
President Trump’s logic is to support American agriculture. However, the reality is more contradictory. The American Farm Bureau Federation stated that the US farming deficit is forecast to reach new record highs in 2025–2026. This widening deficit reflects a combination of factors, including a decline in export competitiveness and changing global trade patterns. For example, China was historically a major export destination for US agricultural products such as soybeans. During Trump’s first term, escalating tariffs triggered Chinese retaliation, including restrictions on US farm imports. In response, the US government provided over $20 billion in subsidies to support farmers affected by the trade war.
While imports have continued to rise, the fall in exports has been more marked since 2022. This challenges the idea that the US is simply ‘keeping food for itself’. In fact, the government’s support for farmers has not led to greater self-sufficiency, but rather a drop in exports and reduced access to overseas markets, while imports have continued to grow.
The chart illustrates the trends in agricultural trade balance, agricultural exports, and agricultural imports. Between 2013 and 2020, exports consistently exceeded imports, resulting in a trade surplus each year. However, from 2020 onwards, imports began to rise sharply, eventually overtaking exports by 2022. This shift led to a trade deficit, which has continued to grow in subsequent years.
US Agricultural Trade: Exports and Imports (Fiscal Year) *
Source: US Department of Agriculture (USDA), US Department of Commerce, Economic Research Service, Outlook for US Agricultural Trade datasets 2013-2025
* The dotted part of the lines and dotted column highlight the forecast for 2025
This confluence of factors contributes to a challenging outlook for inflation and growth. Tariffs on essential food and industrial parts are not just economically inefficient, they are inflationary, and they come at a moment when policy options are limited. As we await the finalisation of trade deals, particularly with the UK, and watch the evolution of conflicts in the Middle East, investors may want to keep an eye on commodity volatility and food inflation risks. In an environment where rising costs and changing consumer demand are coming together, navigating the months ahead will require vigilance – and, as Chair Powell advised, patience.
Mark Christie
Investment Analyst
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