Food and gasoline probably will cost more and the supply chain issues that have bedeviled the economy for the past two years likely will persist or even intensify. But could the Russia-Ukraine conflict somehow tip the U.S. economy into recession? It seems unlikely at this point, though anything is possible.
“What we’ve seen is oil prices have gone up, and equity prices at least initially retreated on all of this. Together, that’s a mild — stress mild — stagflationary hit to the economy,” Wells Fargo chief economist Jay Bryson said. “It’s going to push inflation higher than it is, and it’s probably going to slow growth. But it’s probably not enough to push the economy into recession.” That view is in line with most Wall Street economists.
Nevertheless, at a time when inflation is running at its highest level since the early 1980s, the last thing consumers need is more price pressure. Grain and energy commodity prices catapulted higher in recent weeks, bringing West Texas Intermediate prices up about 22% in 2022 and wheat up by double digits, before receding sharply Friday.
The importance of the two nations as agriculture exporters and producers of elements key to semiconductor manufacturing will exact an economic toll. But the implications shouldn’t be major for a global economy that’s still in a rebound phase from the depths of the pandemic.
The tensions have roiled financial markets, coming as they do at a time when investors already were worried about tighter policy from inflation-fighting central banks including the U.S. Federal Reserve.
Goldman estimates each $10 per barrel increase in oil would raise core inflation excluding food and energy by 0.035 percentage points and headline inflation by 0.2 percentage points, but exacts just a 0.1 percentage point hit to U.S. GDP, which is coming off its fastest full-year growth since 1984. However, Goldman said it doesn’t expect the events in Ukraine to deter the Fed from hiking. Past crises sometimes have triggered the Fed to ease policy, but “inflation risk has created a stronger and more urgent reason for the Fed to tighten today than existed in past episodes,” the firm said.
I remember 2014 year not only due to annexation of Crimea, but also due to depreciation of many currencies in the world. The global market experienced the same effect on Thursday because Russia invaded Ukraine. Brent oil, the benchmark in oil industry, hit almost $100. It would lead to inflation in other industries because gas extremely used almost everywhere
ReplyDeleteI agree that inflation will increase due to the conflict in the Ukraine, but I don't think the US won't be as impacted as other countries. It will be interesting to follow the economic impact and development of the war.
ReplyDeleteThis will obviously be something that is interesting to watch, as oil prices have been higher already. Personally, unless there is a full on world war, I don't believe there will be incredible affects on the economy as a whole.
ReplyDeleteI'm a bit more bearish on the likelihood that this won't have an effect on growth. As we've had these SWIFT sanctions this weekend, I'd expect major economic downturns in Russia in the coming days, which is likely to impact Europe and Asia, and eventually us. Maybe it won't be a recession, but slow growth and high inflation is not the greatest combo.
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