Here is how the Russia-Ukraine war raises prices

Russia’s invasion of Ukraine and the resulting sanctions imposed on Moscow have contributed to the rising global prices felt by Americans throughout the economy, especially in grocery stores and gas pumps.

Russia’s position as a major exporter of raw materials, especially Ukraine’s major agricultural supplier to regions including oil and natural gas, Africa and the Middle East, makes the conflict between the two countries a key point in commodity prices. Is increasing due to infection.

“These countries export a lot of raw materials,” William Reich, former Undersecretary for Trade and now serves as an international business analyst at the Center for Strategic and International Studies, said in an interview. “They have global prices. So when supply is restricted, the effect of the Americans is that prices rise because prices are rising everywhere.

The new Consumer Price Index (CPI) data released by the Labor Department on Tuesday could show another sharp rise in monthly and annual inflation. Consumer prices rose 7.9 percent in the year ending February, with signs of higher inflation rising in March.

On Friday, the Food and Agriculture Organization of the United Nations (FAO) recorded a 12.6 percent increase in its core food price index from February to March, describing it as a “giant leap”. The March numbers represent an all-time high for cereals, vegetable oils and meat, while the sugar and dairy sectors saw huge gains.

In particular, the FAO grain price index rose 17.1 percent from February to March, its highest level since 1990. The increase was driven by “conflict-related export disruptions from Ukraine and, to a lesser extent, the Russian Federation”. According to FAO estimates.

Food prices rose 7.9 percent in February, the largest 12-month increase since July 1981, according to consumer data from the U.S. Bureau of Labor Statistics. The February Food-House Index, which looks at prices related to domestic food production, rose nearly 9 percent over the same period, while wholesale commodity prices rose 2.4 percent in February, the biggest improvement since data first calculated in 2009. .

The war in Ukraine accelerated a steady rise in oil prices by recovering from the epidemic. Fuel oil prices rose 6.7 percent and gas 6.6 percent in February alone, as crude oil prices rose to $ 100 a barrel.

The price of a barrel of West Texas Intermediate crude oil approached $ 130 on March 8 and dropped to approximately $ 94 on Monday, but petrol prices did not fall nearly as fast. According to the AAA National Average, the price of a gallon of conventional unleaded gas is approximately $ 4.10, down just 20 cents from a month ago.

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

Beyond the overall effects of rising commodity prices, which could create ripples in the economy and improve global production pipelines, Russia produces certain products that are directly used by US companies and the country’s consumers through extensions.

“Palladium, vanadium and titanium are three such products,” Reich said.

Palladium is a component in catalytic converters that converts toxic gases produced by internal combustion engines into less toxic pollutants. Vanadium steel is added for reinforcement, and titanium has many uses, including air tiles.

“There are others who produce these products,” Reich said. “But again, these are supply chain interruptions, and we have to fight to find them elsewhere.”

Revenge game

In the run-up to the 2022 midterm elections, as more and more Americans realize the impact of inflation, rising prices have become a major campaign issue, with Republicans and Democrats alike blaming the upward trend in spending.

Republicans have blamed rising inflation on pro-democracy policies, including a $ 1.9 trillion US recovery plan signed by President Biden in March 2021, a year after former President Trump signed a $ 2 trillion corona virus relief package.

Many Democrats have blamed corporations and market accumulation, accusing large corporations of exploiting economic conditions to increase spending.

In contrast, experts point to a combination of factors that contributed to the high price stickers.

“Supply chain disruptions due to infection are part of it. For example, we can not get computer chips and so on,” Desmond Lachman, a senior colleague at the American Enterprise Institute, told The Hill.

“But the budget policy is very loose, and the monetary policy is very loose. So we pushed all three things in the same direction,” he said.

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

“The way you can see that this is not entirely driven by American policy, this is not just an American phenomenon,” Page said. “Increased inflation is something we have seen all over the world or, of course, in developed countries.”

In recent weeks, inflation rates have been rising in countries such as China, Egypt and France, a trend that has been exacerbated by the current Russia-Ukraine war, experts said.

Impact of barriers

The United States has joined forces with its allies in unleashing various sanctions on Russia in response to its occupation of Ukraine.

Rachel Zimba, deputy senior colleague at the New U.S. Defense Center, told The Hill that a number of sanctions aimed at raising spending for Russia and controlling how its government approaches the World Financial Organization.

“Therefore, the government’s ability to use global banks restricts their banking capacity,” Ziemba continued. “The embargo was designed to try to exploit the asymmetrical areas that affect Russia rather than hurt the United States and Europe.”

Ziemba, on the other hand, said some of the effects of the sanctions on the United States were “indirect”, while Russia faced higher payment challenges.

“The other issue, of course, is that the Biden management is trying to do what they can to reduce some of these costs. The challenges are, we are in a tight market … and I think one of the challenges is that oil and gas producers in particular do not make the decision quickly to change their production,” Ziemba said. .

“I think discussions with countries like Saudi Arabia and the United Arab Emirates will take place there. [United Arab Emirates] The reluctance to deviate from the slow extra supply policy has disappointed management, ”he added.

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