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U.S. inflation set to heat up further as impact of Ukraine war intensifies -Breaking


© Reuters. This illustration was taken February 11, 2022. It shows small figurines in front of the displayed words “Inflation”, U.S. Flag and rising stock graph. REUTERS/Dado Ruvic/Ilustration


By Lindsay (NYSE:) Dunsmuir

(Reuters) – The Russian invasion of Ukraine has ended any relief U.S. citizens might have from their skyrocketing cost. Prices at the pump are up by nearly 17 percent in the past week, and other goods such as food prices will continue to rise.

The latest U.S. monthly inflation report for February, which was due Thursday, showed prices increasing at an unprecedented rate of 40% since the beginning of the invasion. This data is only for February and will not reflect the full impact of the rise in U.S. crude oil prices which reached $130 per barrel Monday. However, the increase is expected to drive overall inflation higher over the coming months.

According to Tim Duy of SGH Macro Advisors, “There were expectations that February would mark the highest point in year-over-year headline Inflation, but the Ukraine shock has already sent gas prices higher this March,” said Tim Duy.

It also happens at a dangerous time for Biden’s administration. Already under criticism for its high costs of rent, electricity, food, and other necessities as the country grapples the impacts of the COVID-19 Pandemic (in which supply has exceeded demand), the development is alarming.

U.S. Federal Reserve policymakers are also going to be watching closely the reading. It will happen just one week before they set to increase interest rates by 25% as part of a tightening cycle to reduce inflation and not derail the economy’s expansion.

Fed Chair Jerome Powell indicated last week that the central banking will be prudent given the uncertain impact of the conflict in Ukraine. However, high inflation will continue to weigh on policymakers’ minds as they make forecasts for how much hikes will occur in the coming months at their March policy meeting.

Reuters polled economists and forecast that the Consumer Price Index would have risen 7.9% year-over-year in February. This is up from 7.5% in January. After an increase of 0.6% in the previous month, the monthly rate will rise 0.8%.

Although gas prices rose by nearly 6 percent in February, that would be an increase of 0.2 percentage points to the overall number. But the greater effects will still come.

According to AAA, Monday’s average U.S. gasoline price was $4.065 per gallon. This is only 5 cents below the record. According to AAA, the 45 cents increase in gasoline prices over the week ended Monday was the highest since 2005.

Russia is the largest exporter of oil and natural gas in the world. A possible ban on Russian oil imports was pushed up to $139 per barrel Monday.

Oxford Economics estimates that the rise in oil prices could add about 0.6 percentage points to March’s inflation reading, but this can easily be overcome in the months ahead.

According to investment banks, crude oil prices could reach $200 per barrel if Russia’s supply runs out. This would have dire implications for the world economy.


Although this week’s inflation reading may show some temporary weakness in food prices in February, it is likely that any improvement will be brief.

Economists predict that a rebound in hospitality service demand as the economy recovers from the Omicron disruption will drive up prices for services, such as for restaurants and food-away-from home categories. Barclays (LON: ) Note that the worsening conflict in Ukraine is likely to also cause disruptions in supply chains.

Russia and Ukraine are the largest exporters of wheat in the world, with Ukraine being the biggest corn exporter. Capital Economics estimates that supply chain disruptions will add between 0.2% and 0.4 percent to the headline inflation of developed countries over the coming months. However, food-at-home prices are expected to remain high throughout the year.