Oil prices have jumped significantly above $90 a barrel in recent weeks as the risks of a Russian invasion have increased.
If the Russia-Ukraine crisis pushes the price of oil to around $110 a barrel, inflation in the United States will exceed 10% year-on-year, according to a new analysis by RSM shared exclusively with CNN.
“We are talking about a real short-term shock,” said Joe Brusolas, chief economist at RSM.
“Heating the house and putting gasoline in the car will become more expensive in the immediate aftermath of the Russian invasion,” Brusolas said, adding that there would be a “shock to consumer confidence” and diminished business investment.
Brusuelas estimates that a roughly 20% increase in oil prices to about $110 would raise consumer prices by 2.8 percentage points over the next 12 months, pushing inflation above the 10% threshold. This would contradict the current expectations of inflation to calm gradually from high levels.
However, the impact on the broader economy may be less dramatic.
Brusolas estimates that the jump to $110 for oil will reduce just a percentage point of US gross domestic product over the next year.
However, rising inflation is likely to put renewed pressure on the Federal Reserve to intensify its battle to control prices by significantly raising interest rates.
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