War in Ukraine : rising energy prices may push inflation even higher

17 March 2022

Inflation could exceed 4%, and more!

The direct consequences of the war in Ukraine on the price of oil and inflation throughout Europe

 

On Thursday, 24 February, oil was worth $102 per barrel. The price of raw materials also soared, following the invasion of Ukraine by Russia.

 

When Ukraine is set ablaze, the world’s markets are set ablaze, with prices soaring in a matter of hours: +6% for wheat, +8% for oil, and even +47% for gas.

 

What are the consequences?

 

sirfull War in Ukraine: rising energy prices may push inflation even higher

War in Ukraine: An employee in a branded jacket walks past a part of Gazprom’s Power Of Siberia gas pipeline at the Atamanskaya compressor station outside the far eastern town of Svobodny, in Amur region, Russia, November 29, 2019. REUTERS/Maxim Shemetov.

Inflation could exceed 4%, and more!

 

First, bad news for fuel. Russia is the third-largest oil producer in the world and represents 12% of French consumption. The war is worrying the markets, so a new increase at the pump is expected.

 

In Germany, the largest consumer of Russian gas, the two-year inflation-adjusted yield—which excludes expected inflation—has fallen 60 basis points since the beginning of last week and implies an inflation rate of up to 3.7%, up from 2.4% in early February.

 

The increase is even more significant for gas, as Russia is Europe’s number one supplier, accounting for 46% of our consumption. What is worse, Russian gas passes in part through Ukraine, via pipelines that could be damaged by a major war.

 

It is difficult to find another supplier at short notice. The government has promised to maintain the gas tariff shield if necessary. The surge in energy prices, to which must be added the price of wheat and aluminum, is likely to further reinforce inflation, which could exceed 4%, according to several economists.

 

Before the war in Ukraine, the Bank of England forecast that inflation would reach a 30-year high of about 7.25% in April when the 54% increase in household energy bills takes effect.

 

Yields on one-year UK inflation-linked bonds—or linkers as they are known—have fallen 80 basis points since the beginning of last week, reaching a record low of less than -7% and at one point implying an inflation rate of over 9%.

 

Sources:
Ukraine crisis-led gas price surge revives demand for inflation hedges

– Guerre en Ukraine : la flambée des prix de l’énergie risque de renforcer un peu plus l’inflation

 


 

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Sirfull is a software vendor with a strong industrial culture and French know-how, which develops solutions that enable its customers to anticipate changes in their market.

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