International Oil Prices Fueling Inflation... Interest Rate Hike Timeline Accelerates

[Asia Economy Reporter Ji Yeon-jin] Following Russia's invasion of Ukraine, international oil prices have surged sharply, stimulating global inflation and leading to forecasts that the US will raise interest rates rapidly.

According to the financial investment industry on the 5th, both West Texas Intermediate (WTI) and Brent crude recently exceeded $110 per barrel. Global energy companies such as BP and Shell are ending their investment relationships and withdrawing from businesses with Rosneft and Gazprom, the state-owned companies leading Russia's oil and gas industries.

The US has announced measures to control exports of crude oil and gas extraction equipment to Russian refineries and mentioned that it is also keeping open the possibility of physical sanctions on Russian oil and gas.

Meanwhile, the OPEC+ meeting, a consultative body of OPEC member countries and other oil-producing nations, maintained the April production increase at 400,000 barrels per day despite concerns over supply shortages from Russia, increasing upward pressure on oil prices. Jeon Gyu-yeon, a researcher at Hana Financial Investment, stated, "With Western countries continuing economic sanctions against Russia, major commodity prices including international oil prices are expected to remain high for the time being."

These geopolitical risks increase price pressures through rising commodity prices and supply chain disruptions. Considering the recovery trend in high-frequency data related to recent economic reopening, demand-side price pressures are also expected to rise for the time being. Since the end of January, the spread of Omicron has peaked out and countries have eased quarantine measures. As mobility in retail and leisure sectors has increased, the proportion of dining out at restaurants has risen, and the number of airline passengers is recovering. The researcher said, "Considering households' consumption capacity, the reopening effect is likely to be temporary," but added, "However, considering the recovery in demand for the service sector and wage increases due to labor shortages, inflationary pressures may prolong, increasing the burden on private economic agents."

US President Joe Biden named curbing inflation as his top priority in his State of the Union address, and Jerome Powell, Chair of the US Federal Reserve (Fed), is expected to begin a tightening cycle starting with a 25 basis point rate hike this month. The Federal Open Market Committee (FOMC) in March has already signaled a 25 basis point rate increase, and if inflation worsens, it has left open the possibility of raising the hike to 50 basis points in the future. Researcher Cho said, "For the time being, the US economy and labor market will remain robust, and price pressures will stay high," adding, "if the US economy continues its solid growth, the Fed is likely to maintain a steep rate hike trend during the first half of the year, starting with the March FOMC."

This content was produced with the assistance of AI translation services.