November 26, 2022

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A new analysis finds that the inflation rate will reach 10% if the conflict between Russia and Ukraine worsens

A new analysis finds that the inflation rate will reach 10% if the conflict between Russia and Ukraine worsens

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.

Russia is the second largest producer of oil, natural gas and global oil supply in the world. The crisis comes at a time when the global energy market is already struggling to keep up with demand. JPMorgan warned that any disruption to Russian oil flows would be so “Easily” sends oil to $120 a barrel.

“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.

US oil prices hit $95 a barrel on Monday for the first time since 2014. But crude reversed course on Tuesday, falling below $92 a barrel on Monday. Hopes to reduce escalation between Russia and Ukraine.
current inflation rate – Consumer prices increased 7.5% In January of the previous year – is the highest level since February 1982. And High living expenses Strongly affected consumer confidence, which It fell earlier this month to a new decade low.
The prices at the pump were a sore spot. The national average for regular gasoline was $3.50 a gallon on Tuesday, up from $3.46 a week ago, According to AAA.

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.

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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.

Referring to recent calls for the Federal Reserve to raise interest rates by half a percentage point in one meeting of the Federal Reserve, Brusolas said. For the first time since 2000.