Putin’s war on Ukraine could drive up inflation but slow rise in global interest rates

Protests are taking place around the world following Russia's invasion of Ukraine.

Darryl Dyck/AP

Protests are taking place around the world following Russia’s invasion of Ukraine.

Russian President Vladimir Putin’s war on Ukraine could raise global inflation by around 1%, but still slow interest rate hikes by central banks around the world, according to Singapore-based Capital Economics.

Capital Economics said there was no exact historical parallel to the current crisis and, in terms of economic impact, much depended on Russian actions and the reaction of Western governments.

But his instinct was that if inflation tended to rise after such crises, “central banks usually set policy a little looser than they otherwise would have,” he said.

This could imply that mortgage rates may not rise as far or as quickly as currently expected.

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* Adrian Orr suggests the Reserve Bank is ‘incredibly worried’ about inflation

Reserve Bank Governor Adrian Orr pointed to the inflationary implications of a deeper crisis on Wednesday, before the bloodshed, but agreed it could also suppress global demand.

In November, Orr highlighted the importance of global interest rate trends on local mortgage rates and downplayed the importance of his own official exchange rate, when he said his OCR only played a “small role” in creating unsustainable property prices.

Capital Economics predicts overnight that oil could reach $130 a barrel (NZ$194) and European gas prices at 180 euros (NZ$300) per megawatt-hour of energy in the coming weeks, depending on the level of sanctions applied against Russia.

That would push average annual inflation in developed economies over the next few months to 5% to 6%, he said.

reserve bank

Reserve Bank Governor Adrian Orr discusses the implications for New Zealand of the Ukraine crisis on February 23.

But he said central banks would “weigh upside risks to inflation against downside risks to activity.”

The conflict would not derail monetary policy tightening plans around the world this year, but “events of the past 24 hours have tipped the balance towards caution,” he said.

Risks were greatest for the euro zone due to its closer ties to Russia, but the conflict also made a 50 basis point hike by the US Federal Reserve in March “even less likely”, it said. -he declares.

Capital Economics raised its short-term price forecast for a range of agricultural commodities by around 25%.

Russia and Ukraine accounted for between 25 and 30 percent of global wheat exports and about 80 percent of global sunflower seed exports, he said.

“Most of these exports leave from Black Sea ports, at the heart of a possible military conflict.

“Besides the port issue, there is also the risk of damage to Ukrainian crops as a result of ground fighting.”

It's still

Christel Yardley / Stuff

It’s still “business as usual” for Fonterra in Russia, says the dairy giant.

Fonterra spokesman Henry Acland said its operations and joint venture Unifood in Moscow and Russia’s St. Petersburg, where it has 42 employees, were currently operating as normal.

“We are closely monitoring developments related to developments in Russia and Ukraine to understand the implications for Fonterra and will respond as needed,” Acland said.

“The safety of our employees is our top priority.

The NZX top 50 was trading down 2.1% shortly before 11 a.m. Friday, after falling 3.3% in the immediate wake of the war with Ukraine on Thursday.

Brent crude for April delivery was trading up 2.6% at US$99.38 a barrel.

Gull chief executive Dave Bodger said it’s a very good rule of thumb that every $1 increase in the price of a barrel of oil raises the price of gasoline by one cent per liter.

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