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Inflation Could Reach 10% Amid A Russia-Ukraine Conflict

By Cristian Bustos. Originally published at ValueWalk.

Energy Prices Recession-Level Selling Hyperinflation inflation

Inflation could fly past the 9.7% mark from January to 10%, making the cost of living in America even worse. A new analysis by RSM arrives at such a conclusion given the increasing oil prices, which have crossed the line of $90 a barrel, amid the political tension between Russia and Ukraine.


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Inflation To Get Worse

CNN had access to an analysis by RSM, which establishes that should the tension between Russia and Ukraine mount, oil could reach a price of $110 a barrel. On this prediction, inflation in the U.S. would exceed 10% year-on-year.

Government data reveals that the country has not experienced inflation of 10% since October 1981, and should it happen again, “We’re talking about a real short-term shock,” according to Joe Brusuelas, chief economist at the firm.

Since Russia is the world’s second oil and natural gas producer by volume, the threat of a conflict with Ukraine adds up to the already sky-high energy prices that have driven inflation throughout the world.

Should war erupt, Russia could see its production output affected, which could send oil to a price of $120 a barrel.

Consequences

As Brusuelas says, “Heating the home and putting gasoline in the car will become more expensive in the immediate aftermath of a Russian invasion,” which could dent consumer confidence and put corporate investment on hold.

For the first time since 2014, oil reached $95 a barrel on Monday while crude went the opposite way by dipping to $92 a barrel as fears of a Russian invasion tailed off.

According to the expert, consumer prices would increase by 2.8 percentage points if the price per barrel jumps 20% to about $110 in the course of the following 12 months. This would send inflation through and above the 10% threshold.

“That would run counter to current expectations for inflation to gradually cool off from elevated levels.”

“This would cause the Federal Reserve to quicken the pace of its policy normalization. You would hear more about a 50-basis point increase,” he said, in relation to the Fed’s possible interest rates hike.

Updated on

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