Ukraine-Driven Inflation Pressure, 10% Forecast... Biden Already Says "Putin's Fault"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] As Russia's invasion of Ukraine shows no signs of being resolved in the short term, inflationary pressures originating from Ukraine are also intensifying. Inflation in the United States, which has already approached 8%, is expected to peak in March and April as the impact of the invasion is fully reflected. When the February inflation data hit the highest level in 40 years, U.S. President Joe Biden immediately blamed Russian President Vladimir Putin for the high prices.

On the 10th (local time), Bloomberg Economics forecasted that if energy prices, including gasoline, continue to rise, the U.S. Consumer Price Index (CPI) increase could reach up to 10%. The February CPI released that day surged 7.9% compared to the same month last year, marking the largest increase since January 1982. The main driver was gasoline. Gasoline prices soared by a staggering 38% year-over-year and rose 6.6% compared to the previous month.

In a statement shortly after, President Biden pointed the finger at Russia, saying, "The main cause of inflation is the rise in gas and energy prices as markets react to President Putin's aggressive actions." However, contrary to Biden’s remarks, the data did not fully reflect the impact of Russia’s invasion of Ukraine because much of the data collection was completed before Russia launched its military operation on February 24. The Wall Street Journal (WSJ) noted, "Don’t blame President Putin for the price increases just yet," adding, "This is President Biden’s inflation."

The market expects that from the March CPI report to be released next month, the rise in oil and raw material prices due to the Ukraine crisis will be fully reflected. This has raised concerns that U.S. inflation, which was initially expected to peak in February and then decline, could last longer than anticipated. Recently, as international oil prices surged to the $130 per barrel range due to Russia’s invasion of Ukraine, the national average gasoline price in the U.S. surpassed $4 per gallon for the first time since 2008.

Bloomberg News reported, "The CPI is expected to peak at 8-9% in March and April this year." Kathy Bostonchik, an analyst at Oxford Economics, raised the year-end CPI forecast by more than 1.0 percentage point to 4%.

Federal Reserve Chairman Jerome Powell previously reaffirmed plans to raise interest rates in March, warning that the Ukraine crisis could worsen inflation in the U.S. John Leer, chief economist at Morning Consult, predicted, "Unfortunately, the war in Ukraine will make controlling inflation even more difficult." Ed Keon, chief investment strategist at PGIM, said, "The Fed faces a very difficult challenge," adding, "It will have to walk a tightrope between inflation and recession."

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