Finance & Economics
Inflation: The world economy at war
War and sanctions means inflation but not necessarily higher interest rates
Russia may have tried to build a “fortress economy”, but it is the West that currently looks financially impervious.
Compared with the deep economic crisis brought about in the country by Western sanctions, the consequences for the rich world have been small.
Though American stocks fell sharply when the war started on February 24th, on March 2nd they closed almost 4% higher than their level the night before the invasion.
European stocks are about 4% down—a big hit, but nothing compared with the financial rout under way in Russia, where the currency has collapsed and stockmarket trading has been suspended for days.
In part the muted reaction reflects Russia’s low weight in the global economy: about 2% in dollar terms.
The country’s relative poverty and smaller population when compared with the rest of Europe mean that its exporters depend on European demand but not vice versa.
Goldman Sachs, a bank, estimates that the loss of exports caused by a 10% fall in Russian spending would cost the euro zone only about 0.1% of its gdp, and Britain still less. Financial links are modest.
Yet Russia’s economic importance vastly outweighs its gdp or financial clout owing to its energy exports.
It produces nearly a fifth of the world’s natural gas, and more than a tenth of the world’s oil, the price of which drives much of the short-term variation in global inflation.
Typically 30-40% of the eu’s gas supply comes from Russia (though this has fallen to about 20% in recent months as Europe has increased its imports of lng from America).
It does not just heat Europe’s homes but also powers much of its industrial production. Among big economies Italy and Germany are particularly exposed.
Energy prices increased dramatically on March 1st and 2nd. European natural-gas spot prices are now more than double their level at the start of February.
So are futures prices for delivery in December 2022, reflecting in part the cancellation of the Nord Stream 2 pipeline from Russia to Germany, which had been hoped to ease supply this year.
2022年12月交割的原油期貨價格也是如此，這在一定程度上反映了從俄羅斯到德國的北溪2號(Nord Stream 2)管道的取消所產生的后果，人們本希望該管道能緩解今年的供應緊張。
The oil price is up over 25% to about $115 per barrel. The energy squeeze will worsen Europe’s inflation problem while also hitting its growth.
JPMorgan Chase, a bank, has raised its forecast for euro-area inflation at the end of the year by 1.1 percentage points, to 3.6%, while cutting its growth forecast for 2022 by 0.6 percentage points, to 4.1%.
As a producer of oil and gas America is mostly insulated from the drag on growth, but will feel the inflationary effects of pricier oil.