Ag professor: More workers needed to tame inflation

Jason Henderson

Growing the U.S. workforce either through more immigration or a higher birthrate will tame any future problematic inflation rates, according to a Purdue University professor. 

Jason Henderson, senior associate dean in the College of Agriculture, discussed inflationary concerns and upcoming inflation expectations Tuesday during the Iowa Bankers Association Annual Convention and Expo in downtown Des Moines. His comments come as inflation remains an economic concern. A July economic indicator report released by the Creighton University/Heider College of Business predicted “very strong growth” over the next three-six months but also indicated inflation and a plummeting confidence index. According to the report, nearly 38 percent of supply managers expected rising input prices to be absorbed by their companies in the form of lower profits.  

The introduction of new technology into the economy in the coming years will also calm any inflation increases, Henderson said. 

The Indiana-based professor contrasted current inflation rates to the soaring inflation of the 1970s: The 5.3 percent U.S. inflation rate last month was less than the 6.8 percent average inflation rate in the 1970s. Other similarities include the ending of the Vietnam and Afghanistan wars, Henderson noted, as well the working-age population’s major role. Inflation in the 1970s was partially caused by a decrease in productivity corresponding with the large number of baby boomers entering the workforce, spending money and starting families. Today, Henderson said, millennials who delayed building homes and buying new cars during the Great Recession are beginning to do so, sparking an increase in manufacturing demand and a shortage in home construction, car manufacturing and energy. Also, the first generation of baby boomers is retiring; the working-age population has fallen by 1 million over the past year as some retired early due to the pandemic, contributing to the labor shortage. 

The Federal Reserve is keeping inflation moderately above 2 percent until maximum employment is reached but has since indicated it might slow its robust support for the economy.   Henderson expects the Fed to start reducing its support after the stock market remained stable following Fed Chair Jerome Powell’s announcement last month that the Fed is drawing closer to ending its increased support. 

Though currently low interest rates underpin farming asset values and reduce debt service, Henderson expects the ag economy to worsen once a full market adjustment occurs.