Here’s how the Russian-Ukrainian war is driving up prices
(The Hill) – Russia’s invasion of Ukraine and the resulting sanctions imposed on Moscow are contributing to the global price spike that Americans are feeling across the economy, especially at groceries and grocery stores. gas pump.
Russia’s status as a major exporter of raw materials, especially oil and natural gas, as well as Ukraine’s position as a key agricultural supplier to regions such as Africa and the Middle East, make the conflict between the two countries a flashpoint for commodity prices, which were already on the rise due to the pandemic.
“These countries export a lot of raw materials,” William Reinsch, a former undersecretary of commerce who is now an international trade analyst at the Center for Strategic and International Studies, said in an interview. “They tend to have a global price. And so when supply is tight, the consequence for Americans is that the price goes up because it goes up everywhere.
New Consumer Price Index (CPI) data to be released by the Labor Department on Tuesday is expected to show another sharp rise in monthly and annual inflation. Consumer prices rose 7.9% in the year to February, and signs of high inflation in March are mounting.
On Friday, the Food and Agriculture Organization of the United Nations (FAO) recorded a 12.6% increase in its benchmark food price index from February to March, a rise it called ” giant leap”. March’s figures represent all-time highs for grains, vegetable oils and meats, while the sugar and dairy sectors also saw strong gains.
The FAO Cereals Price Index, in particular, recorded a 17.1 percent increase from February to March, marking its highest level since 1990. conflict from Ukraine and, to a lesser extent, the Russian Federation”. according to an FAO assessment.
The global figures are consistent with the situation in the United States, where food prices rose 7.9% in February from a year earlier, the biggest 12-month increase since July 1981, the data shows. on consumers from the United States Bureau of Labor Statistics. February’s Home Food Index, which examines prices related to home food preparation, rose nearly 9% over the same period, while wholesale prices for goods jumped 2, 4% in February, the strongest increase since the first calculation of the data in 2009. .
The war in Ukraine has also accelerated a steady rise in oil prices, driven in large part by the post-pandemic recovery. Fuel oil prices rose 6.7% and gasoline prices rose 6.6% in February alone, according to the CPI, as crude oil prices hit $100 a barrel.
The price of West Texas Intermediate crude peaked near $130 a barrel on March 8 before falling to around $94 on Monday, but gasoline prices haven’t fallen as quickly. A gallon of regular unleaded gasoline costs about $4.10, according to the national AAA average, down just 20 cents from a month ago.
While inflation-adjusted gasoline prices are still below the highs seen following the Great Recession, rising energy costs may hit consumers harder than inflation in other sectors . Higher gasoline prices are not only difficult for drivers to avoid, but can also increase the cost of transporting store-bought goods.
Beyond the cumulative effects of rising commodity prices, which can ripple through the economy and amplify as they move up global production lines, Russia produces some goods that American companies, and by extension the consumers of the country, use directly.
“Palladium, vanadium and titanium are three such products,” Reinsch said.
Palladium is a component of catalytic converters, which convert toxic gases produced by internal combustion engines into less toxic pollutants. Vanadium is added to steel to make it stronger, and titanium has many applications, including aircraft hulls.
“There are others making these products,” Reinsch said. “But again, these are supply chain disruptions, and we have to manage to find them elsewhere.”
As more Americans feel the inflation sting, rising prices have become a major campaign issue ahead of the 2022 midterm elections, with Republicans and Democrats taking turns blaming the trend. to rising costs.
Republicans have blamed rising inflation on Democratic-backed policies, including the $1.9 trillion U.S. bailout President Biden signed into law in March 2021, about a year after the former president Trump has signed a $2 trillion bipartisan coronavirus relief package.
A number of Democrats, in turn, blamed corporations and market concentration, accusing big business of taking advantage of economic conditions to drive up costs.
On the other hand, experts have pointed to a combination of factors that have contributed to the rise in sticker prices.
“Part of this is due to supply chain disruptions due to the pandemic. We cannot get the goods that we used to get, for example, like computer chips, etc. Desmond Lachman, senior fellow at the American Enterprise Institute, told The Hill.
“But it was also the case that fiscal policy was too loose and monetary policy was too loose. So we had the three things pushing in the same direction,” he said.
Ben Page, a senior fellow at the Urban-Brookings Center for Fiscal Policy, also told The Hill that stimulative fiscal policy contributes to inflation, but added that he would not call it the “root cause of the major part of inflation.
“I think the way you can see that it’s not purely driven by American politics is that it’s not just an American phenomenon,” Page said. “Rising inflation is something we’ve seen around the world, or certainly in the developed world.”
In recent weeks, countries like China, Egypt and France have seen rising inflation rates, a trend that experts say is exacerbated by the ongoing war between Russia and Ukraine.
Impact of sanctions
The United States has joined its allies in unleashing a series of sanctions against Russia in response to its invasion of Ukraine.
Rachel Ziemba, associate senior researcher at the Center for a New American Security, told The Hill that many of the sanctions are aimed at increasing costs for Russia and restricting its government’s access to the global financial system.
“So limiting their bank’s ability to the government’s ability to use global banks,” Ziemba continued. “And the sanctions program was set up in a way to try to use the areas of asymmetry that would hurt Russia more than the United States and Europe.” speed up energy switch
On the other hand, Ziemba said some of the impacts the US has seen as a result of the sanctions have been “sort of indirect”, while Russia has faced more payment issues.
“The other issue, of course, the Biden administration is trying to do what it can to alleviate some of those costs. The challenges are that we are in a tight market…and I think one of the challenges will be that a number of oil and gas producers, in particular, are not making quick decisions to change their production,” said said Ziemba.
“I think that’s where the debates with countries like Saudi Arabia and the United Arab Emirates [United Arab Emirates] have been reluctant to deviate from their additional idle supply policy has been disappointing to the administration,” she added.
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