Broadcast Retirement Network’s Jeffrey Snyder discusses how military strikes in Iran impact gas and food prices with Texas A&M’s David Anderson.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now, David Anderson is an economist and professor at Texas A&M University. Dr. Anderson, great to see you. Thanks for joining us this morning.
Hey, great to see you too. And I’m so glad we could catch up. And also I’m glad that we could talk about the economic numbers, but we had time between when they were released and when you’re actually gonna do your analysis so we can actually have a thoughtful conversation.
So let’s start off with the February CPI number. I wanna get your reaction to those numbers and what does that mean for consumers?
David Anderson, PhD., Texas A&M University
Well, I’m not sure it was a surprise it was up. And I think we all see that at the store. Remember the CPI is a backward looking for the February report, right?
It came out in March. So I’m not sure that’s a real surprise. I think if we look at the food side of it, particularly the meat side of it, again, beef prices are higher.
Not a lot of change on the pork side. Chicken is actually a little bit lower if we look at the CPI data. Eggs, we’d take a look at eggs, which has been in the news a lot.
The CPI reported that they were down 58%. And in fact, they were the lowest since November of 2023. So we’ve seen a lot of change on the egg side of things.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I don’t know if you could, they’re testing the fire alarm in a building. So my apologies to the audience and to you. Let’s just try to plow through it because nothing should get in the way of good information.
So egg prices have come down, chicken prices have come down, beef prices, as we talked about, still a challenge there because the herds are thin, we’re importing, we’re doing what we can. So that’s backward looking, doctor, excuse me. Now let’s look about what’s happening in March.
Because there are some geopolitical events that are gonna impact CPI for the month of March.
David Anderson, PhD., Texas A&M University
They sure are. So since that report came out, certainly the war with Iran has started. I don’t know about everybody else’s gas prices, but at the pump I drive by every day, gas is up 90 cents, 38% higher than it was a couple of weeks ago.
And that’s going to make a big change, I think. I mean, that’s a major impact on people’s wallets. That’s gonna show up in the next CPI report when you get that fuel component.
I just think that’s going to be a big deal. And it’s gonna affect everything. It’s how we get everything from where we make it to where we sell it, from the farm in this case to us consumers or everything that we buy is transported.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, sorry, I didn’t mean to interrupt you. I apologize. So yeah, I mean, we’re gonna feel this in March.
So I mean, I think the expectation is probably from the market, from economists like yourself and probably for consumers that the number is gonna be higher in March than it was in February for everything you mentioned. Let’s talk about the long-term impact of this war. I don’t wanna talk about the politics of the war, but the reality is 20% of the oil in the world goes through this particular strait called the Strait of Hormuz.
So longer term, let’s just assume that military operations are wrapped up in the next six to eight weeks. Longer term, when I say longer term, I mean three to six months, we could see inflation come back down, right? If oil is able to trespass through this strait unencumbered.
David Anderson, PhD., Texas A&M University
Yeah, as you note, that’s a major choke point for oil, gas. It also affects fertilizer prices. And it’s almost, well, it already is past planting time for crops in sort of South Texas, but for fertilizer, for folks that are still in the market to buy fertilizer to fertilize those crops, we’re gonna see much higher production costs and eventually that will relate to production and prices on down the line, that over the growing season.
So I think that’s an important part. I think one of the things on the oil side of it, we certainly have much higher oil prices because of this supply disruption. We’re a major oil producing country in the world.
We export a lot of oil ourselves. I think people forget that or didn’t realize that we actually export oil. You know, high prices is the market signal to produce more.
But at the same time, there’s a long lead time to be able to produce more. And so, you know, if this situation is worked out and then oil prices come back down, it probably doesn’t do much to boost our production if prices come back down. Yet as a consumer, I could use those prices to be lower myself.
And so it’s really, this is part of everything we produce. It’s how we produce it. Energy is how we produce it and how we get it to where it’s going.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. You mentioned the Wildcatters. I’m waiting for Billy Bob Thornton, who I don’t know if you’ve seen the show, Landman.
It’s absolutely phenomenal. So on Paramount Plus, they’re not a sponsor, but it’s a great show. Hopefully they can, you know, he can come to the aid and we can get more oil kind of coming through.
If they don’t go through the Strait of Hormuz, I think they have to go around the Horn of Africa, right? In order to get the transit, the oil to where it needs to go. Because it can’t go through that Strait.
The only other alternative is to go through Africa. Let me go back to something you talked about earlier, Dr. 90 cents, the oil, I’m surprised by this. The price of gas went up in Texas.
Texas is like the biggest oil production state in the union. But how much of that is taxes, is gasoline taxes?
David Anderson, PhD., Texas A&M University
Well, you know, the federal tax, gosh, I think it’s something about 28 cents a gallon and it doesn’t change. So that way it was 28 cents before it’s still 28 cents. And somebody will probably correct me for what the actual, but it’s, I’m gonna say a relatively small proportion of the overall gas, what you pay at the pump.
And that does, it’s not a proportional thing. It’s a flat thing. So that hasn’t changed as part of it.
That’s been, it’s been the same level, I think for many years. So the tax side of it, you know, I’ve seen the, there’s been a lot of talk about, could we change that? Could we have a tax holiday?
You know, that probably wouldn’t do a whole lot. And the thing is those, if I remember right, those funds are earmarked for roadways. And so sooner or later you get around to having to fix the roads.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, yeah. I mean, that’s, that’s, that’s an important, you need to be able to drive on the roads. And I understand that.
So what about, I’m just trying to think about ways that we can actually bring the price of gas down. Yeah, they were talking about price caps. Price caps typically are going to create shortages because it artificially, you’re the economist here, but it artificially caps the price of a product and therefore people are going to go out and buy more of it.
But anyway, you’re the economist, you tell me.
David Anderson, PhD., Texas A&M University
I think oftentimes we talk about price ceilings, price caps, fixing prices. You know, it often sounds like a good idea. Why, you know, let’s do something, let’s stop that.
But as an economist, it really becomes self-defeating in the long run. Prices are the market signal. High prices are the signal to produce more.
It’s also the signal to us consumers to buy less. And that’s the part, you know, easier said than done, particularly for fuel. We still got to get to work.
We still have to get from point A to point B. And so, you know, those really aren’t very good solutions to the problem.
Jeffrey Snyder, Broadcast Retirement Network
Let me just close out by asking you one more question. What about alternative sources of energy? A lot of Americans have electric vehicles, Teslas, Rivians, I could go through, you know, Hondas.
Is that a boom for, or a boom opportunity for those types of products, or do you still need fossil fuels in order to recharge those vehicles as well and build them?
David Anderson, PhD., Texas A&M University
Yeah, you know, I think electric vehicles, that’s part of the overall solution, but we’re still going to have fossil fuels. All of these things work together, whether it’s solar, wind, nuclear, geothermal, fossil fuels. It’s all part of our overall energy needs.
And so all of them really have a role. When we think about renewable fuels, ethanol, biodiesel, things that come from the crops that we grow and that we can grow every year. And so that’s part of the solution as well.
And so really they all work together to fill all of our needs.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, well, you know, maybe short-term pain, we’re all feeling, all of us are feeling at the pump, at the grocery store, every major good, you know, hopefully longer term, they’ll come down and look, we’ll continue to check in with you, doctor, to get your perspective and point of view. Dr. David Anderson, great to see you. Thanks for joining us.
And we look forward to having you back on the program again soon, my friend.
David Anderson, PhD., Texas A&M University
Hey, great to see you too.