For several months now, the cost of living has been climbing at a staggering rate, in Quebec and elsewhere.
Russia’s invasion of Ukraine is not good news on the inflation front. Indeed, your purchasing power might well become one of the collateral victims of this conflict.
Here’s why.
Essence
This week, the barrel of oil crossed the psychological barrier of $100. This is a first since 2014. Russia is the world’s second largest oil exporter and third largest producer. Roughly speaking, Russian oil represents 12% of global supply.
“This is a very tangible sign of a change in the world order. It is certain that this will have an impact on the economy, possibly an increase in inflation and a drop in growth,” the president of the Caisse de depot told me this week. Charles Emond fears the consequences of rising fuel prices. “If we have a situation where inflation is accelerating, it’s like a spinning wheel. The price of gas and oil will come back to stimulate inflation which is already galloping. »
How much will the conflict accelerate the rise in the cost of living? Some forecasters evoke gloomy scenarios. Daniel Tenengauzer, chief economist at the Bank of New York Mellon, thinks inflation might even top 10%.
Foodstuffs
The war started by Russia will have an impact even in your grocery cart. The reason is simple: 70% of Ukrainian territory is covered with agricultural land. It is the world’s largest producer of sunflower, the sixth producer of barley and the ninth producer of soybeans.
By invading Ukraine, Russia will control regarding a third of the planet’s wheat production, says Simon Brière, market strategist at RJ O’Brien.
“Pasta, bread, and anything animal protein will be affected. Producing meat will cost more, because feed wheat goes into animal nutrition. A cost increase will have repercussions right up to the grocery store,” he believes.
Since the beginning of the Russian invasion, Ukrainian cereals can hardly leave the country. Odessa has been the target of bombardments, export ports are closed. To add to this, Russian authorities are banning shipping on the Sea of Azov, significantly strangling Ukrainian trade. In comparison, it is a bit like Spain prohibiting access to the Strait of Gibraltar which leads to the Mediterranean Sea.
A rise in prices seems inevitable, since the countries that obtain supplies from Ukraine will turn to American or Canadian cereals, whose reserves are already reduced due to last summer’s drought.
Metals
The price of industrial metals has soared this week as markets worry regarding the international community’s response to Russia. The sanctions imposed might well complicate the supply of several industries, including the automotive industry, which is on the front line.
Russia is the world’s largest producer of palladium. It controls half of the market. This ore is used in particular for the manufacture of catalysts, a key part of the automobile exhaust system.
Ditto for nickel, one of the metals most in demand on the planet in electric battery factories. The aeronautical industry fears for its part a shortage of titanium, prized by aircraft manufacturers for its high resistance.
During this time, the price per ton of aluminum broke records. If the Russians produce only 6% of the world’s aluminum, the slightest disturbance has immense consequences.
Stock market investments
The New York Stock Exchange and its benchmark S&P 500 index have officially entered the correction zone. It’s the kind of week where you had to keep your cool by looking at your wallet.
Most analysts are expecting a bumpy trading session over the next few weeks. The Canadian dollar also lost some feathers, falling to its lowest level since December.
Of course, it is the Ukrainians who pay the highest costs of the Russian attack. The value of a life might never be calculated in dollars, let alone quoted on stock exchanges. But in the economic world, the law of supply and demand is essential. And in this context, even if the conflict takes place 7000 kilometers from Quebec, it is in our pockets that the impacts will be felt.
