By Carl Tannenbaum

Eggs have a prominent place in metaphor.  You shouldn’t put all of them in one basket, and you shouldn’t assume that they will hatch.  You’ll have to break a few of them to make an omelet.  You should strive to be a good one, and not a rotten one.  And you never want to lay one.

Those tasked with controlling inflation must feel as if they are walking on eggshells at the moment.  The price level has continued to escalate more rapidly than desired, despite efforts aimed at containing it.  Consumer anxiety over inflation has also been elevated, in part because of high costs at the supermarket.  Eggs have been an outsized contributor to this discontent.

The average American consumes about 280 eggs per year, which is a modest number.  The price of eggs has a weight of less than 0.2% in the consumer price index.  Nonetheless, it is top of mind in conversations about how expensive things have gotten.  The average retail cost of a dozen eggs is at an all-time high. 

The breakfast chain Waffle House has implemented a fifty cent surcharge on each egg it serves.  100,000 eggs (worth $40,000) were recently stolen from a delivery van in Pennsylvania.  Some families have decided to build coops on their properties to ensure adequate supplies.

This is the second price surge for eggs in the last two years.  The blame lies with a pandemic: not COVID-19, but an avian flu epidemic that has ravaged the laying population.  More than 120 million birds have been lost since the beginning of 2022; 45 million of those have come in the last four months, representing almost 13% of the total flock.  It will take a number of months to replenish the laying population…assuming that there are no further losses to disease.

In a stark illustration of the economics of scarcity, mania and hoarding surrounding eggs have risen in tandem with prices.  There has been frenzy among shoppers, and many stores have taken to placing restrictions on quantities customers can purchase.  We haven’t seen this kind of intensity since early 2020, when paper products and disinfecting wipes were the subject of battles in supermarket aisles.

Avian flu has recently crossed over to affect cattle and other livestock.  For the moment, there is little evidence that milk is unsafe if it has been pasteurized; meat is safe to consume if cooked to the proper temperature.  Very few people have become ill from the virus, and cases have been mild.  But worry surrounding the situation, and the potential that the virus could mutate into something more serious, may remain elevated for some time.

For the Federal Reserve, avian flu is an example of a supply shock which is difficult to address.  The current challenge is orders of magnitude smaller than the fracturing of Asian supply chains in 2020 or any number of oil supply restrictions that have arisen over recent decades.  But to the degree that egg prices affect inflation expectations, they can punch above their weight in challenging monetary policy.

We’re only a few months removed from a U.S. election in which inflation was the number one issue that drove voter behavior.  As we noted in our article “Inflation Has A Perception Problem,” price spikes linger in the consciousness longer than they linger in calculations of inflation.  And stress on individual categories can nullify calm across a swath of others when people form their impressions. 

Given the high stakes surrounding next year’s midterm elections, incumbents will want to do whatever they can to get egg prices to turn over easy.  If they fail, the campaign could turn into a real scramble.