Eggs become a "barometer," adding uncertainty to the Federal Reserve's fight against inflation
Analysis indicates that although the rise in egg prices is influenced by avian influenza, consumers may internalize and infer that overall inflation will not decrease, and consumer inflation expectations have begun to rise. Economists warn that if the Federal Reserve lowers interest rates too early, it may repeat the recession of the 1970s. Therefore, the Federal Reserve has no choice but to maintain interest rates at a higher level for a longer period
The "egg shortage" situation in the United States is becoming increasingly severe, and consumers' sensitivity to inflation is also rising, with egg prices seemingly becoming an "off-the-books" inflation indicator.
Data shows that due to the impact of the avian influenza outbreak, there is a severe shortage in egg supply, with egg prices rising by 15% month-on-month and surging by 53% year-on-year in January 2025. An article from Wall Street Insight in January also shows that the price of a dozen eggs has soared to a historic high of $5.40, surpassing the record of $4.65 set in December 2022. The U.S. Department of Agriculture predicts that egg prices may rise a total of 20.3% for the year.
The chain reaction triggered by the soaring egg prices is also beginning to manifest. The famous chain restaurant Waffle House has added a surcharge of 50 cents, and one economist jokingly stated that humans are trying to lay eggs themselves.
Analysis suggests that although egg prices are not included in the core inflation indicators, their special status as a daily necessity and their easily measurable price characteristics make them an important reference for consumers' perception of inflation:
"While the rise in egg prices is due to the special circumstances of the avian influenza outbreak, these consumers may internalize and infer that overall inflation will not decrease."
It is noteworthy that consumer inflation expectations have begun to rise. Last Friday, the latest consumer sentiment survey from the University of Michigan showed that one-year inflation expectations have risen to 4.3%, reaching a new high since November 2023. Such expectations may lead to a self-fulfilling prophecy: consumers worried about future egg price increases may increase their purchases in advance, thereby pushing up actual inflation levels.
Additionally, potential tariffs may also impact large goods. Considering that large items such as cars and refrigerators may be affected by tariffs, consumers might make purchases in advance, further driving up prices. These factors together create a tricky situation for the Federal Reserve.
Apollo's chief economist Torsten Sløk warned:
"If the Federal Reserve cuts interest rates too early, we may repeat the recession pitfalls of the 1970s. The Federal Reserve has no choice but to keep interest rates at a high level for a longer time."