The drumbeats of war are picking up the pace of inflation. Inflation, as I’ve argued here for some time, was certain to rise for months to come; but you’ll see in the various inflation notes below that sanctions made in response to the war are increasing inflation even more, as could be expected, and shortages due to the war are driving up costs as well.
Some is from the war, itself; some is from our responses to it. What follows is a broad picture of the most notable areas where either background inflation (rising producer costs) or consumer inflation is rising significantly: (Producer costs, of course, eventually get passed on to consumers, so they are the CPI jolts of tomorrow.)
Oil is an inflation gusher
Oil, of course, impacts the price of just about everything, and there is no cavalry here that is going to come to the rescue for anyone, in spite of Biden’s biddings:
Saudi Arabia Hikes Oil Prices Further Into Record Territory
Saudi Arabia raised oil prices for customers in all regions as Russia’s invasion of Ukraine continues to reverberate through markets….
Saudi Aramco increased its Arab Light crude for next month’s shipments to Asia to $9.35 a barrel above the benchmark it uses. That’s a jump of $4.40 a barrel from April, when the key grade was already at a record. The move was roughly in line with a Bloomberg survey of traders and refiners last week.
Oil has soared to more than $100 a barrel in the wake of Moscow’s attack, which has roiled financial markets across the world. Many buyers are avoiding cargoes from Russia, despite them being offered a steep discounts….
Aramco made its decision after OPEC+ on Thursday opted to continue raising output only gradually. The 23-nation group, led by Saudi Arabia and Russia, has resisted calls from major importers including the U.S. to accelerate production increases and bring down global fuel prices….
“It’s a massive [price] increase,” said Giovanni Staunovo, a commodity analyst at UBS Group AG. “Extra volumes from Saudi Arabia will only come at a high price.”
And not all of the rise in fuel prices is due to the rise in costs seen by refiners. Exxon has boasted about its massive increase in profits due to the shortages created from Russian sources being taken offline for much of the world:
Exxon Mobil Corp. signaled its highest profit since 2008 as Russia’s war in Ukraine upended global commodity markets. Exxon’s announcement that first-quarter results may have reached almost $11 billion augurs booming profits across the oil industry as trade sanctions, shipping disruptions and surging demand strain supply lines.
So a little price gouging or profiteering going on there, not just a passthrough of higher costs to consumers, but a pass-through of exploding profit margins as well. Apparently shortages are good for business … at least for some businesses — the ones with their own ample supplies, who see gushers of profits in times like these.
The windfall doesn’t come without risks, however. Key Democrats in the U.S. House of Representatives demanded Exxon and peers Chevron Corp., Shell Plc and BP Plc immediately halt dividends and share buybacks until the war’s conclusion, and scolded them for “profiteering off the crisis in Ukraine….”
Exxon “is charging outrageous gas prices while seeing record profits,” Senator Ed Markey, a Massachusetts Democrat, said in a Facebook post. “We should tax Big Oil’s windfall profits and return that money to the working people of this country.”
What? Oil companies, slimy profiteers? Who could have seen that coming?