How conflict and inflation are colliding in the world..... While the extraordinarily strict sanctions imposed on Russia constitute an admirable policy response to its appalling invasion of Ukraine, the world should not be complacent about the potential boomerang effect on the global economy.

The shunning of Russian petroleum has already caused oil prices to jump. Prices of corn and wheat, major exports of both Russia and Ukraine, have been soaring -in the case of wheat, to levels not seen since 2008.

THAT comes as America is already enduring the highest inflation in 40 years. Last Thursday, the Labor Department reported that prices in February were 7.9 percent higher than a year ago, an acceleration from the previous month.

MORE inflation likely means slower growth. On the demand side, the bite of inflation will leave households with less money to spend. On the supply side, already stretched supply lines will be further challenged by repercussions from the war in Ukraine.

In addition to energy and food, Russia and Ukraine supply significant amounts of important materials and components of manufacturing.

For example, roughly 40 percent of the world's palladium [ used in catalytic converters in cars] comes from Russia and 70% of the world's neon [central to the production of semiconductors] comes from Ukraine.

And as we learned during the Covid, an inability to source even one small part can hurt a company's ability to manufacture its product. By inhibiting production, supply chain problems inhibit growth.

In America, The Federal Reserve now faces its most significant policy dilemma since the last bout of inflation four decades ago. In managing other recent crisis, like the Sept.11 attacks and Covid, quiescent prices allowed the central bank to cut rates to offset disruptions.

Slower growth, weak stock markets, a tougher housing market, stagflation and possibly a recession may be on the horizon.

But that is the price America and even the world  must pay for bad fiscal and monetary policies as well as a meritorious effort to keep Ukraine from Russian domination.

The World Students Society thanks Steven Ratner, a Wall Street executive and was a counselor to the Treasury Secretary in the Obama administration.


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