Feb 24, 2022 - Economy & Business

War further pressures food and energy prices

A person holds a gas pump near his car
Gas prices are poised to rise due to Russia's invasion of Ukraine. Al Seib/Los Angeles Times via Getty Images

Russia’s invasion of Ukraine threatens to sustain or even exacerbate inflation in the U.S. as food and energy prices face further upward pressure.

The big picture: Experts were hoping that inflation had peaked at a 40-year high of 7.5% in January and was poised to fall as the pandemic eases and spending normalizes.

Threat level: Energy prices, which were up 27% year-over-year in January, rose Thursday on fears that the war will disrupt the flow of gas and oil from Russia.

  • U.S. oil prices on Thursday topped $100 per barrel for the first time in about eight years.
  • A spike in spot prices of gasoline suggested that a $3.75-per-gallon national average retail price may be around the corner, according to GasBuddy petroleum analyst Patrick De Haan.

Yes, but: OPEC could take action to bolster oil supplies, especially if Saudi Arabia sees an opportunity to act.

  • “It could be a very good PR exercise,” said Capital Economics chief commodities economist Caroline Bain. “It would improve relations with the U.S., and it would also convey that image that it’s the reasonable OPEC producer that likes to see the market in a comfortable balance, not prices sky high.”

The U.S. is also working with other countries to pursue the release of oil from the strategic reserves of major energy consuming countries, President Biden said today.

  • "We're taking active steps to bring down the cost, and American oil and gas companies should not exploit this moment to hike their prices to raise profits," he said.

Keep in mind: Energy prices also affect food prices, as the cost of fuel affects transportation.

  • Food prices face additional inflation risk as the war threatens supplies of wheat in the region once known as the “breadbasket of Europe.”
  • Grain prices are poised to rise 20% to 30%, according to Bain.

What we’re watching: Whether sanctions or Putin’s actions disrupt the flow of energy and food — and whether the war causes any physical damage to fuel infrastructure or crops.

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