The global pandemic and high levels of inflation in many markets are negatively affecting the availability of goods. This is most apparent in pharmaceuticals and medical supplies, which have seen sharp increases in price as well as reductions in inventory levels.
The conflict between Ukraine and Russia will exacerbate many of the economic issues brought on by COVID-19. As prices rise and supplies become even more uncertain, consumers should prepare for a volatile future.
COMODITIES GO SHORT
Even before Russian troops entered Ukrainian territory, oil and natural gas prices were rising. The ensuing instability will cause prices to increase further. This is particularly troublesome for Europe, which relies heavily on Russian energy exports. Ukraine is also a significant source for wheat and precious/industrial metals.
LIMITED LOGISTICS
The movement of goods, services and people is at the heart of economic activity. Disruptions to these activities will be severe and disruptive. Concerns over safety will lead to travel hesitancy as air space closes and transportation infrastructure is strained.
SUPPLY AND DEMAND IMBALANCE
Higher inflation is already the reality in many parts of the world today, driven by a supply and demand imbalance. That inflation will both push those numbers higher and make it more difficult for central banks to control inflation.
The world is experiencing the highest inflation numbers seen in decades.
The recent escalation in global conflict is fuelling inflation rates that have not been seen in decades. Demonstrating the impact this will have on economic growth and monetary policy, this briefing explores how geopolitical escalation could push global inflation even higher, particularly in oil-related currencies.
The effects of the war will not be limited to physical destruction. As the conflict draws on, its after-effects will become more costly and harder to resolve.
Oil and gas prices reached their highest level since 2014
Early in the pandemic, oil-producing countries deliberately reduced supply in order to stabilize prices in the face of lower demand. As that demand began to grow, not all oil producers kept up, leading to a steady increase in price.
The conflict in Ukraine then caused those prices to sky-rocket, increasing by almost 50% YoY, with some experts predicting highs of $120 per barrel. Russia's share of global oil production is roughly 12%, exported primarily to Europe
and Asia. Europe also relies on Russia for around 40% of its natural gas.
The oil and gas are still flowing, and Western sanctions specific to Russian energy are not yet expected as it would harm Europe and its Asian allies. However, sanctions could arrive. Russia could also choose to preemptively stop exporting to certain countries if the situation escalates.
Source: BBC News; The Economist, Mintel
Higher commodity prices will affect many industries
While oil and natural gas tend to dominate the headlines, other commodities supplied by Russia and Ukraine, like wheat and metal, are equally important to the global supply chain. Russia and Ukraine combined to account for nearly 30% of the global wheat market, with Ukraine becoming China's biggest corn supplier in 2021. Any sustained shortage would surely result in higher prices and consumers settling for alternatives. Both countries are also a major source of precious and industrial metals. In 2020, Russia produced 43% of the world's palladium, which is used in catalytic converters. Russia is also a large producer of aluminum, copper, nickel and platinum, materials used for food storage, batteries and jewelry, among others.
Source: CNBC, The Economist, Mintel
These factors are causing severe volatility in global markets
The major stock markets have fallen sharply in response to the conflict, which could have long-term impact on companies' and consumers' investment decisions.
Source: Wall Street Journal
Comments