Navigating rising inflation and interest rates with agricultural investments

    Weiyi Zhang, Ph.D., Senior Agricultural Economist
    Manulife Investment Management

    Wading through a new era: pent-up inflationary pressures as monetary policies tighten

    The global economy and financial markets have experienced significant volatility over the past few months, with inflationary pressures heightened and monetary policies beginning to tighten. During January and February 2022, U.S. consumer price-level increases accelerated to their highest level in 40 years, posting 7.5% and 7.9% in year-over-year changes in the Consumer Price Index (CPI) for two consecutive months. Core CPI readings, after excluding volatile cost components such as food and energy, also increased at an annual rate of 6.4% in February 2022. The current heated state of the economy has pushed the U.S. Federal Reserve (Fed) to end the near-zero interest-rate environment by raising interest rates for the first time since 2018. Fueled by additional risk factors such as regional geopolitical conflicts, higher inflation and more interest-rate hikes are expected.

    • Inflationary pressures are expected to weigh on farmers’ financial profitability, but commodity prices remain at historically high levels.
    • Farmland can demonstrate stable and resilient return performance through periods of differing economic cycles.
    • The changing interest-rate environments and pronounced market volatility of past decades have encouraged investor interest in low-risk, income-generating asset classes.

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    Image courtesy of Manulife Investment Management

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