Inflation is expected to only get worse

If you think inflation is bad now, just wait, warn economists.

Just as the economic impact of the COVID-19 pandemic had begun to fade, new risks have emerged. Russia’s invasion of Ukraine has sent the price of commodities skyrocketing and threatens further disruptions to already weak supply chains.

“There will be a Putin inflation component,” Allianz SE’S Mohamed El-erian said on CBS’S Face the Nation, due to “the disruption that Putin’s war implied for commodity prices, supply chains and shipments.”

The Russian invasion and surging inflation have now taken over the pandemic as key risks to global growth, say RBC economists.

Russia is one of the top three oil producers in the world and Russia and Ukraine account for about a quarter of global wheat and barley exports and 14 per cent of corn. Russia is also a major supplier of some base metals and fertilizers.

“Higher oil prices and potentially significant disruptions to agricultural production … will boost food and energy price inflations globally. And the potential for further escalation represent a large new source of geopolitical uncertainty for the global economic outlook,” said RBC.

Since the invasion, we have seen oil prices shoot up to historic highs in the US$130S, and in the first week of March, gas prices soared 16 per cent, up 46 per cent from a year ago.

World food prices are now forecast to rise by more than 14 per cent in 2022, four percentage points faster than before the Russian invasion, says Oxford Economics.

Canadians will be feeling it not just at the gas pumps and grocery checkouts, but across a wide range of goods and services, says RBC. Its forecast for Canadian inflation is a 5.4 per cent rise in February (we will find out Wednesday) and closer to six per cent rise in March because of surging gas prices.