The recent rise in the cost of eggs and the increase in interest rates on money lending may seem unrelated, but they are both symptomatic of larger economic trends that are affecting businesses and consumers alike. There are plenty of contributing factors behind both price increases, and we could see similar responses to both increases. Here is how eggs can tell us about the state of business funding and the economy.
Rising Cost of Eggs
First, let’s take a look at the rising cost of eggs. The cost of eggs increased by over 60% in 2022 alone. There are several reasons for this increase, including the rising cost of feed, labor shortages in the egg industry, and a debilitating avian flu outbreak. The largest factor is the avian flu outbreak. It is the worst outbreak ever and has affected about 15% of egg laying hens.
Rising Interest Rates
On the other hand, the Federal Reserve has been raising interest rates in response to the strengthening economy, with the most recent increase in February 2023 of a quarter point. This means there have been 8 increases since March 2022 and the Fed Funds Rate is now at its highest since October 2007. This has an impact on everything from credit card rates to mortgage rates, making borrowing more expensive for consumers and businesses alike.
How are eggs connected to the economy?
So, what’s the connection between these seemingly unrelated trends? It all comes down to inflation. Inflation is the rate at which the general level of prices for goods and services is rising, and it’s been on the rise in the US. Inflation can be caused by a variety of factors, including supply chain disruptions, labor shortages, and changes in government policies.
How does inflation affect business funding?
When inflation is high, it can lead to higher prices for goods and services, including eggs. The rising cost of feed and labor shortages in the egg industry are just a couple factors that contribute to higher prices for eggs. Similarly, inflation can also lead to higher interest rates. When the Federal Reserve raises interest rates, it’s often in response to concerns about inflation, as higher interest rates can help to slow down economic growth and reduce inflationary pressures.
The avian flu outbreak can be a sort of metaphor for inflation. Both the avian flu and inflation are at their worst in recent history. Both factors have caused price increases. Finally, both price increases have caused a pain to consumers and businesses. For egg consumers, it means paying more for a carton of eggs or switching to an alternative. For businesses, it means paying more for a bank loan or switching to an alternative.
How does inflation affect consumers and businesses?
So, what does all of this mean for consumers and businesses? For consumers, it means that they may be paying more for things like eggs and other goods and services. This can put a strain on household budgets, especially for low-income households that may already be struggling to make ends meet. For businesses, it means that borrowing money is becoming more expensive, which can make it harder to invest in new projects and expand their operations.
There are steps that both consumers and businesses can take to mitigate the impact of these trends. For consumers, it may mean looking for ways to cut costs, such as by buying less expensive eggs or finding ways to reduce energy consumption to lower utility bills. It could also mean switching away from eggs and buying yogurt or oatmeal for breakfast instead.
How can businesses mitigate the effects of inflation?
For businesses, it may mean finding ways to improve efficiency and reduce costs in order to maintain profitability despite higher borrowing costs. As the tech industry has seen it could also mean layoffs and downsizing. Alternatively, businesses could explore other financing options, such as crowdfunding or invoice factoring, to reduce reliance on traditional bank loans.
When it comes to business funding that is not reliant on bank loans or other bank institutions, invoice factoring is a top option. Invoice factoring companies can either be independent financing companies or subsidiaries of a bank. If a factoring company is attached to a bank, likely the same increases in bank financing will apply to the factoring company’s pricing. If a factoring company is independent, however, their pricing is not directly subject to increases in the Fed Funds Rate.
Is invoice factoring affected by interest rates?
Eagle Business Credit is an independent factoring company. Since Eagle is not a division of a bank, there is more flexibility in pricing control. This is not to say that drastic increases to interest rates would not affect our pricing. However, we do not increase the costs of our financing at a 1:1 with rising interest rates. So far, we have been able to not pass along borrowing costs to our clients. We intend to continue this.
When it comes to eggs and the economy, we see ourselves as oatmeal. Invoice factoring is a solid option in the same way that oatmeal is a solid breakfast choice. Neither are going to break the bank. We are not directly related to the rising interest rates or avian flu. However, inflation can affect the costs of everything across the economy, even if not as drastic as the cost of eggs.
In conclusion, the rising cost of eggs and the increase in interest rates on money lending are both symptoms of larger economic trends, both related to inflation. While these trends can have a negative impact on consumers and businesses alike, there are steps that can be taken to mitigate their effects. By staying informed and being proactive, consumers and businesses can navigate these challenging economic times and come out stronger on the other side.