Russian President Vladimir Putin’s decision to invade Ukraine could drive prices even higher at a moment when inflation is already rising at the fastest clip in decades.
Economists are racing to assess the impact of the attack, which could spark the biggest war in Europe since 1945. The conflict is unlikely to tip the global economy back into recession, they say, but market tumult, the threat of punishing sanctions and potential supply disruptions are already pushing up the wholesale price of energy and some agricultural products. Consumers will pay more for gasoline and food as a result.
“Inflation is likely to peak at higher levels that we were envisaging just a few days ago,” said Ben May, director of global macro research at Oxford Economics.
Here’s what could get more expensive around the world as a result.
Fuel
Global oil prices jumped above $105 per barrel on Thursday, hitting their highest level since 2014. In the United States, oil prices approached $100 per barrel.
That will make it more expensive for drivers to fill up their tanks. In the United States, the average price of a gallon of gas rose to $3.54, up from $3.33 one month ago and $2.66 this time last year.
The Biden administration is exploring ways to blunt the rise in gas prices, though it’s not clear how much can be done given high demand and tight supply.
The price of natural gas, which is used to heat homes and power industry, is also spiking. The benchmark price in Europe soared 29% to €114.65 ($127.80) per megawatt hour on Thursday, according to data from Independent Commodity Intelligence Services.
That’s below the all-time high reached before Christmas, but will still hit pocketbooks if prices remain elevated. Bank of America previously estimated that European households would pay €650 ($724) more for energy this year, bringing average spending to €1,850 ($2,061).
Higher energy costs will raise expenses for companies, too. Jet fuel will get pricier for airlines, potentially triggering higher air fares, while manufacturers that use a lot of power, like steelmakers, will be squeezed. That could ripple across the economy.
Food
Global food prices were already near a 10-year high. Now, the Russia-Ukraine conflict could make matters worse.
Russia is the world’s top exporter of wheat, while Ukraine is a significant exporter of both wheat and corn. They also export vegetable oils.
Wheat prices jumped to their highest level since 2012 on Thursday. The price of corn leaped, too. Soybeans, which often trade in line with corn, also pushed higher.
Egypt and Turkey are top buyers of Russian wheat. But they won’t be the only ones affected if shipments are delayed or sanctions disrupt exports.
“Regardless of exactly where foodstuffs go, clearly if there’s a shortage generally in the world, then the price is going to be driven up,” May said.
Ukraine still needed to export 15 million metric tons of corn and between 5 million and 6 million metric tons of wheat this season, according to Rabobank commodities analyst Michael Magdovitz.
Now buyers like China are turning to Europe and the United States to fill the gap. If fighting drags on, limited supplies there could become even more constrained.
“If you have a protracted conflict, then you need to find a much greater amount,” Magdovitz said.
Helima Croft, head of global commodity strategy at RBC Capital Markets, said the risk of greater food price inflation “appears acute” because Russia and Ukraine together account for a 25% of global wheat exports, while Ukraine alone accounts for 13% of corn exports.
And there’s another potential blow to farmers: Russia is the largest producer of ammonium nitrate, a key component in fertilizer, RBC added.
US Agriculture Secretary Tom Vilsack said Thursday that European consumers could be more exposed to a jump in food prices than Americans.
Metals
The price of metals used in a wide range of consumer products is soaring as investors dig into the ramifications of the invasion and weigh whether sanctions could affect supplies.
“Russia is a major producer of metals including aluminum and nickel and is also a substantial copper producer,” said analysts at S&P Global Platts. “Market sources believe the near-certainty that stricter sanctions will be introduced on trade with Russia could further squeeze supplies in global markets that are already tight.”
Aluminum prices in London shot up to a record high on Thursday.
Russia’s Rusal, which has been sanctioned by the United States previously, is one of the world’s biggest aluminum producers. If fresh penalties are imposed, it could cause prices to skyrocket.
Prices were already elevated because smelters in Europe have had to cut their output due to rising electricity costs. Even if Rusal isn’t sanctioned, the latest spike in energy prices could exacerbate the situation.
Metals such as aluminum are used in thousands of products around the world, from cans for food and drinks to vehicles and electronics.