It seemed absurd, back in March, when President Biden was Constant inflation began to be called “Putin’s price hike.”. Gasoline and many other things were skyrocketing before Putin ordered Russia’s invasion of Ukraine on February 24, and blaming Putin was suddenly an opportunistic shift in blame.
More than 100 days into the war, it is clear that the Russian president’s war has had the most visible impact on world prices of any single geopolitical development since the oil shocks of the 1970s. a new report by the Organization for Economic Co-operation and Development compares current projections for inflation, growth, income and living standards with projections at the end of 2021, to provide a before and after perspective of how the Russian war affects the entire global economy. The effect is stark and likely to get worse rather than better.
Pre-war year-on-year inflation expectations for the 38 OECD members were 4.4%. It’s now double that, at 8.8%. The United States, which is struggling with an inflation rate of 8.3%, is actually doing better than many other countries. Eastern European countries close to the war zone, such as Poland, Latvia and Estonia, are on the right track for double-digit inflation. UK inflation forecast is 8.8%. in Turkey, Already suffering from monetary policy slipsInflation has risen from 24% before the war to 72% now.
War in a country causes economic pain almost everywhere for a number of reasons. The United States and many countries in Europe and elsewhere have imposed severe sanctions on the Russian economy, to punish Russia for its brutality, which is causing great collateral damage. Russia is the world’s largest oil and gas producer, and while Russia continues to export energy, sanctions have slashed Russian sales, leaving supplies short as the global economy recovers from the Covid pandemic, boosting energy demand.
“We were really into a tightening market last year,” says Raoul LeBlanc, vice president of energy practice at S&P Global. “The COVID pandemic has used up a lot of capacity and the recovery has happened quickly. It’s hard to restart the system, and at the same time people want to get back on planes and drive for vacations.”
Oil markets could get tighter, driving up prices. Europe plans to phase out 90% of its purchases of Russian oil by the end of the year, switching to different suppliers or other types of energy. Russia will be able to sell some of this product, at a discount, to other buyers, such as China and India. But Standard & Poor’s Global estimates that Russia’s supply of oil and petroleum products to global markets could fall by 20% to 25%, at a time when demand is rising in China as strict coronavirus lockdowns end. Other countries can slowly ramp up production to take advantage of higher prices, but there is no tap anyone can turn that will flood the market with new oil.
The cost of living crisis
Energy is an important input to transportation, manufacturing, food production, and many other things. So higher energy costs raise the cost of other products, including necessities like food. This problem has been exacerbated by the Russian blockade of Ukraine’s Black Sea ports, which prevents shipments of cooking oil, barley, wheat and corn to regions such as Africa and the Middle East that depend on Ukrainian food exports.
Russia is also a major exporter of foodstuffs, and while no one directly punishes food, financial sanctions make it difficult for Russia to export almost everything. Sanctions are also affecting Russian exports of some fertilizer compounds, more than doubling the cost of fertilizers and adding to the cost of growing food away from Russia or Ukraine.
The OECD calls it a “cost of living crisis” and says: “The war in Ukraine has dashed hopes for a quick end to the rising inflation from COVID-19-related supply bottlenecks seen throughout the global economy during 2021 and early 2022. Consumer prices will peak later and at higher levels than previously expected.”
World Bank Recently warned of “global stagflation, with many countries entering a recession this year. The main reason is the war of Russia. Most economists see a slowdown in US growth, but not a recession, given that unemployment is still very low. Europe, which is more dependent on Russian energy, is likely to do worse, and developing countries may face direct crises. a May report from the Eurasia Group and Sustainable Strategies DevryBV It is estimated that the loss of food exports from Ukraine and Russia will boost the number of food insecure people by 101 million by the end of 2022, and the number living in extreme poverty by up to 201 million.
Putin may not mind, and some analysts believe that destabilizing states seeking to punish Russia with sanctions are part of his war strategy. Putin may also know that maintaining sanctions on Russia can become more politically difficult when it causes excruciatingly high energy and food costs for consumers unaccustomed to such hardships. In this sense, sanctions are a battle of attrition in which Russia hopes to show that it can withstand more pain for much longer than it is trying to punish these countries.
Here in the US, the legitimacy of Biden’s rhetoric about Putin’s price hikes grows as the damage mounts. It might not help him. Polls show Americans think Putin’s war in Ukraine raises prices, but they do I think Biden’s policies are the number one reason, which is a big reason for Biden’s low approval rating. Russia, for its part, is also experiencing inflation, with the cost of some consumer products being 50% or 60% higher than it was before the war. But it would likely get much worse for Putin, the dictator, if he had any trouble with the public. Russia can withstand the pain for at least a while.