Here’s how the war between Russia and Ukraine drives up prices

Russia’s invasion of Ukraine and the consequent sanctions against Moscow are contributing to rising global prices, which the Americans are feeling throughout the economy, especially in the grocery store and the gas station.

Russia’s status as a major exporter of raw materials, especially oil and natural gas, together with Ukraine’s position as a major agricultural supplier to regions including Africa and the Middle East, make the conflict between the two countries a hotspot for commodity prices, which were already rising due to the pandemic .

“These countries export a lot of commodities,” said William Reinsch, a former deputy prime minister for trade who now works as an international business analyst at the Center for Strategic and International Studies, in an interview. ‘They tend to have a world price. And so when supply is limited, the consequence for Americans is that the price goes up because it goes up everywhere. “

New data for the Consumer Price Index (CPI), released on Tuesday by the Ministry of Labor, is likely to show another sharp jump in both monthly and annual inflation. Consumer prices rose by 7.9 percent in the year ending February, and signs of high inflation in March are rising.

On Friday, the Food and Agriculture Organization of the United Nations (FAO) recorded a 12.6 percent increase in its benchmark food price index from February to March, an increase it described as a “giant leap.” The figures for March represent all-time highs for cereals, vegetable oils and meat, while the sugar and dairy sectors also saw great progress.

In particular, the FAO grain price index saw a 17.1 percent increase from February to March, marking the highest level since 1990. The increase was “mainly driven by conflict-related export disruptions from Ukraine and to a lesser extent the Russian Federation.” according to an FAO assessment.

Global figures are consistent with the situation in the United States, where food prices rose by 7.9 percent in February compared to the year before, the largest increase in 12 months since July 1981, according to consumer data from the U.S. Bureau of Labor Statistics. The food-at-home index for February, which looks at prices for domestic food preparation, rose nearly 9 percent over the same period, while wholesale prices for goods rose 2.4 percent in February, the biggest advance since data was first calculated in 2009.

The war in Ukraine also accelerated a steady rise in oil prices, mainly driven by the recovery from the pandemic. Fuel prices rose 6.7 percent and gas prices rose 6.6 percent in February alone, according to the CPI, as crude oil prices rose to $ 100 per barrel.

The price of a barrel of West Texas Intermediate crude peaked near $ 130 on March 8, before falling to around $ 94 on Monday, but gasoline prices have not fallen nearly as fast. A gallon of regular unleaded gas costs about $ 4.10 according to the AAA national average, down just 20 cents from a month ago.

While inflation-adjusted gas prices are still below peaks in the wake of the Great Recession, higher energy costs could hit consumers harder than inflation in other sectors. Higher gas prices are not only difficult to avoid for drivers, but can also increase transportation costs for purchased goods.

In addition to the cumulative effects of rising commodity prices, which can surge through the economy and magnify as they work their way up global production pipelines, Russia produces certain goods that US companies, and by extension the country’s consumers, use directly.

“Palladium, vanadium and titanium are three such goods,” Reinsch said.

Palladium is a component of catalysts that converts toxic gases produced by internal combustion engines into less toxic pollutants. Vanadium is added to steel to make it stronger, and titanium has several uses, including flying shells.

“There are others who produce these products,” Reinsch said. “But again, these are supply chain disruptions, and we have to climb around to find them from elsewhere.”

The blame game

As more Americans feel the sting of inflation, the rise in prices has emerged as a major campaign issue ahead of the 2022 midterm elections, with Republicans and Democrats taking turns blaming the rising cost trend.

Republicans have blamed rising inflation on democratically backed policies, including the $ 1.9 trillion US rescue plan that President Biden signed into law in March 2021, about a year after former President Trump signed a $ 2 trillion coronavirus aid package. .

A number of Democrats, in turn, have blamed companies and market concentration and accused larger companies of exploiting economic conditions to increase costs.

In contrast, experts have pointed to a combination of factors that have contributed to the higher price tags.

“Part of it is supply chain disruptions due to the pandemic. We can not get the goods we got before, for example as computer chips and so on,” Desmond Lachman, a senior fellow for the American Enterprise Institute, told The Hill.

“But it was also the case that budgetary policy was too loose and monetary policy was too loose. So we had all three things heading in the same direction, ”he said.

Ben Page, a senior fellow at the Urban-Brookings Tax Policy Center, also told The Hill that stimulating fiscal policy contributed to inflation, but added that he would not call it “the root cause of most of the inflation.”

“I think the way you can see that it’s not driven solely by American politics is that it’s not just an American phenomenon,” Page said. “Rising inflation is something we have seen all over the world, or certainly across the developed world.”

In recent weeks, countries such as China, Egypt and France have seen rising inflation rates, a trend expert says, exacerbated by the ongoing war between Russia and Ukraine.

Impact on sanctions

The United States has joined the Allies in triggering a series of sanctions against Russia in response to the country’s invasion of Ukraine.

Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, told The Hill that many of the sanctions have been aimed at increasing costs for Russia and limiting how its government gains access to the global financial system.

“So, to limit their bank’s ability to the government’s ability to use global banks,” Ziemba continued. “And the sanctions program was created in a way that tried to use the areas of asymmetry that would harm Russia more than it would harm the United States and Europe.”

On the back, Ziemba said some of the effects the US has seen as a result of the sanctions have been “kind of indirect”, while Russia has faced several payment challenges.

“The second question, of course, is the Biden administration is trying to do what they can to alleviate some of these costs. The challenges are that we are in a tight market… and I think one of the challenges will be , that a number of producers of especially oil and gas do not quickly make decisions to change their production, ”said Ziemba.

“I think it’s there, the debates with a kind of country like Saudi Arabia and the UAE [United Arab Emirates] have been reluctant to deviate from their go-slow supplementary supply policy, have been disappointing to the administration, ”she added.

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