(CNN) – Russian President Vladimir Putin’s decision to invade Ukraine could push prices even higher at a moment when inflation is already rising at its fastest pace in decades.
Economists are racing to gauge the impact of the attack, which could spark the biggest war in Europe since 1945. The conflict is unlikely to plunge the global economy back into recession, they say, but market turmoil, threats of sanctions and potential supply disruptions are already driving up wholesale prices for energy and some agricultural products. As a result, consumers are paying more for gas and groceries.
“Inflation is likely to peak at higher levels than we envisioned just days ago,” said Ben May, director of global macro research at Oxford Economics.
Here’s what that could make more expensive around the world.
Global oil prices jumped above $105 a barrel on Thursday, hitting the highest level since 2014. In the United States, oil prices approached $100 a barrel.
This makes refueling more expensive for drivers. In the United States, the average price of a gallon of gasoline rose to $3.54, up from $3.33 a month ago and $2.66 at this time last year.
The Biden administration is looking at ways to dampen 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 rising sharply. The reference price in Europe rose 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 set before Christmas, but will still hit wallets if prices stay elevated. Bank of America previously estimated that European households would spend €650 ($724) more on energy this year, bringing average spending to €1,850 ($2,061).
Higher energy costs will also increase costs for businesses. Jet fuel will become more expensive for airlines, potentially leading to higher fares, while manufacturers that use large amounts of electricity, such as steelmakers, will come under pressure. That could affect the economy.
Global food prices were already near a 10-year high. Now the Russia-Ukraine conflict could make matters worse.
Russia is the world’s largest exporter of wheat, while Ukraine is a major exporter of wheat and corn. They also export vegetable oils.
Wheat prices jumped Thursday to their highest level since 2012. Corn prices also jumped. Soybeans, which are often traded alongside corn, also rose.
Egypt and Turkey are top buyers of Russian wheat. But they won’t be the only ones hit if deliveries are delayed or sanctions disrupt exports.
“Regardless of where the food goes, clearly if there’s a shortage in the world generally, then the price will go up,” May said.
According to commodities analyst Michael Magdovitz, Ukraine has yet to export 15 million tons of corn and between 5 and 6 million tons of wheat this season.
Now buyers like China are turning to Europe and the United States to fill the gap. As the fighting drags on, limited supplies there could become even tighter.
“If you have a protracted conflict, you need to find a much larger crowd,” Magdovitz said.
Helima Croft, head of global commodities strategy at RBC Capital Markets, said the risk of higher food price inflation “appears acute” as Russia and Ukraine together account for 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 fertilizers, RBC added.
US Agriculture Secretary Tom Vilsack said Thursday that European consumers could be more exposed than Americans to a rise in food prices.
Metals, used in a wide range of consumer products, are priced higher as investors grapple with the impact 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 major producer of copper,” said analysts at S&P Global Platts. “Market sources believe the near certainty of tighter sanctions on trade with Russia could put further pressure on supply in already tight global markets.”
Aluminum prices in London rose to a record high on Thursday.
Russia’s Rusal, previously sanctioned by the United States, is one of the world’s largest aluminum producers. If new penalties are imposed, it could send prices skyrocketing.
The prices were already higher because smelters in Europe had to reduce their production due to rising electricity costs. Even if Rusal is not sanctioned, the recent spike in energy prices could exacerbate the situation.
Metals like aluminum are used in thousands of products around the world, from food and beverage cans to vehicles and electronics.
The CNN Wire
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