Ripple effects resonate for economy on edge
These days, it feels like we’re holding things together by a thread.
Why it matters: The well-known stresses on supply chains — borne from pandemic-induced labor shortages and a surge in demand for goods — have left no slack in the system. Today, smaller disruptions in remote corners of the supply chain are having outsized ripple effects.
The big picture: Just as the supply chain crisis and inflation looked like they might've peaked, Russia attacked Ukraine.
- The fact that the war has concurrently threatened the most ancient of products (wheat) along with the most modern of needs (neon to produce semiconductors) encapsulates the breadth of our economic predicament.
- Global wheat supplies had already plunged to a five-year low in 2021, while prices hit an all-time high, as poor growing conditions in the Northern Hemisphere have strained wheat markets in recent years.
- Now a war between two of the top five largest exporters of wheat threatens to disrupt supplies.
Separately, the escalating cost of oil is making shipping more expensive, just as U.S. ports still struggle from historic backlogs.
- And seemingly small protests from truckers have the power to shut down factories, as the industry already lacked enough drivers to keep up with shipments.
Threat level: This is our new normal, at least for now.
- Expect inflation to remain high as the Russia-Ukraine war keeps energy prices elevated.
- Expect market volatility to continue as investors absorb the sweeping impact of sanctions on Russia and the spike in oil above $110 per barrel.
What we're watching: Whether Russian President Vladimir Putin retaliates against Western sanctions by disrupting the flow of oil and gas, which would lead to even further price hikes and market turmoil.
- "Until recently, it seemed plausible that the conflict would dissipate quickly with little economic impact outside Russia and Ukraine," Capital Economics economist Jennifer McKeown wrote.
Our thought bubble: Emphasis on "until recently."
The good news: Friday's jobs report may show the unemployment rate continuing to decline.