We are all aware that the cost of living in America is high. I know as a college student who now has to pay for her own gas and groceries and other necessities, I take notice of how much prices have increased over the past few weeks. According to an article published by CNN Business, “If the Russia-Ukraine crisis drives oil to about $110 a barrel, inflation in the United States would exceed 10% on a year-over-year basis…the US economy hasn’t experienced 10% inflation since October 1981, according to government statistics.”
Essentially, Russia invading Ukraine and igniting a war, would make inflation worse. If you’ve been keeping up with the news, you’ve probably heard about Russia and a possible invasion of Ukraine. With Russia inundating the Ukraine border with troops, and the United States deliberating on possible military involvement, a possible war with Russia over Ukraine seems to be looming. It is also important to note that Russia is the world’s second largest producer of both oil and natural gas and global oil supplies; and to make matters more perplexing, this crisis comes at a time when the world energy market is already grappling to keep up with demand.
With a potential war occurring in Ukraine, things could become quite inflationary for the United States for a multitude of reasons:
- Federal deficits would increase. Wars are expensive and involve allocation of funds for weapons, ammunition, and military equipment. The additional spending that would be necessary to aid a war in Ukraine, will undoubtedly increase the Federal deficit, putting the U.S. more in debt.
- Monetary policy would have to ease meaning the government will have to issue additional Treasury bonds.
- Energy prices are likely to rise.
- Shortages would probably worsen.
- Food prices could continue to increase
- U.S. Dollar could depreciate
All in all, countries that depend on Ukraine’s rich supply of energy- wheat, nickel, and other staples could feel the strain of price spikes. As stated by Patricia Cohen and Jack Ewing in a New York Times article, “An outright attack by Russian troops could cause dizzying spikes in energy and food prices, fuel inflation fears and spook investors, a combination that threatens investment and growth in economies around the world.”