Europe, Canada, and U.S. Annualized Inflation Rates (Sources: U.S. Bureau of Labor Statistics, Eurostat, Canadian Consumer Price Index, Rateinflation.com) April 21 April 22 May 22 June 22 July 22 Aug. 22 Sept. 22 Euro Area 1.6 7.4 8.1 8.6 8.9 9.1 9.9 Canada 3.4 6.8 7.7 8.1 7.6 7.0 6.9 United Kingdom 1.5 9.0 9.1 9.4 10.1 9.9 10.1 U.S. 4.2 8.3 8.6 9.1 8.5 8.3 8.2 The war in Ukraine has played a major role in fueling inflation, particularly through increasing food and energy prices. The U.S. and its allies would pay a price for Putin’s invasion. Economic sanctions against Russia would mean economic costs; there would also be a cost to not doing anything. The costs would be different, but there would be costs incurred no matter what course the United States chose. The United States and NATO allies placed economic sanctions against Russia and provided military support to Ukraine. According to the U.S. Energy Information Administration (EIA), Russia was the world’s third-largest producer of petroleum and other liquids (after the United States and Saudi Arabia) in 2020 and was the second-largest producer of dry natural gas in 2020 (after the United States). Oil production in Russia far outpaces consumption in Russia. According to the International Energy Administration , Russia is the world’s largest exporter of oil to global markets and the second largest crude oil exporter behind Saudi Arabia. Collectively, the European Union relies heavily on oil imports, with Russia a major supplier of energy. According to Eurostat , the European dependency on imports for oil and petroleum products reached a record high in 2020, with the European Union relying on net imports for 96.96% of its energy needs. In 2020, Russia accounted for approximately one-third of European oil imports. Europe also relies extensively on natural gas imports. Since Europe placed sanctions on Russia following the invasion of Ukraine, European dependence on Russian energy has decreased, but remains significant. Russia was the largest provider of petroleum to Europe in 2021, comprising 25.9% of oil imports in 2021 but decreasing to 21.3% of imports in the second quarter of 2022. Russia was also the largest supplier of natural gas to the EU with a market share of 39.7% in 2021, but Russia accounted for only 22.9% of EU natural gas imports in the second quarter of 2022. Russia’s role as a leading exporter of oil to global markets combined with their invasion of Ukraine significantly contributed to uncertainty and price increases in energy markets. According to Investopedia.com , Brent Crude is the most widely used global benchmark for oil pricing, with approximately two-thirds of global crude contracts tied to the Brent Crude oil price. The graph below shows global Brent crude oil prices since 2020. After crashing in early 2020 due to the economic contraction caused by COVID, oil prices gradually rose as the global economy recovered and the demand for oil increased. Oil prices appeared to be stabilizing in late 2021. However, oil prices spiked from approximately $75 a barrel in late December 2021 to almost $120 a barrel in June 2022 after Russia invaded Ukraine in February. The increased oil prices not only affected global energy costs, but also transportation costs for goods worldwide, both key factors contributing to global inflation. Since June, oil prices declined by approximately one-third to around $90 a barrel in October. Multiple factors contributed to the decline, including the global economic slowdown in 2022, fears of a pending recession in 2023, and lower demand from China. In addition, crude oil is generally priced in U.S. dollars, so purchases in other currencies are not only affected by the dollar price of crude oil but also by the exchange rate to the dollar. Generally, the value of the dollar has increased against most currencies as the Federal Reserve aggressively raised U.S. interest rates in 2022, creating more demand for the dollar.
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Center for Business and Economic Insight
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