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So Russia provides a ton of oil. Oil is an input into basically everything you've ever owned. The instability and lack of supply of oil as a result of the war i

So Russia provides a ton of oil. Oil is an input into basically everything you've ever owned. The instability and lack of supply of oil as a result of the war is driving an increase in the price of oil, which is driving an increase in the price of goods. An increase in the price of goods means a decrease in the purchasing power of the dollar. This is how inflation is calculated. Ergo, the Russians launching the war in Ukraine significantly contributes to inflation. Is it solely responsible? Of course not. Does it contribute? Oh most definitely.

mise_en_place 5y ago
I think 1.4 Trillion in asset purchases by the Fed has more to do with inflation than Russia invading Ukraine. You could make an argument it impacted wheat prices. But the oil market already priced the invasion in, it’s in backwardation with farther months trading lower and lower.
- arcticbull 5y ago
  There's really no basis to think that asset purchases are responsible for this. Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2]. Asset purchases didn't cause the Port of LA to back up (ships still wait in port 18 days [3]). Asset purchases didn't cause a lack of supply of IC manufacturing [4], including due to bad weather. Asset purchases didn't cause COVID outbreaks [5]. Asset purchases didn't cause labor supply issues [6]. I agree the oil market is in backwardation, but this is retrospective CPI, not December 2023 CPI. [edit] Check out the graph on page 7 (11th page in the PDF) [1] It shows you just how little global central bank balance sheets are in terms of the market. It's less than 8.9% of global financial assets, and while it increased a lot recently (for obvious reasons) on average over the last 20 years it's not super dramatic. [1] https://www.fsb.org/wp-content/uploads/P161221.pdf https://www.fsb.org/wp-content/uploads/P161221.pdf [2] https://unctad.org/news/shipping-during-covid-19-why-container-freight-rates-have-surged https://unctad.org/news/shipping-during-covid-19-why-contain... [3] https://www.wsj.com/articles/container-ship-backup-at-southern-california-ports-is-receding-11644523945 https://www.wsj.com/articles/container-ship-backup-at-southe... [4] https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-prices-set-to-rise-into-2022-as-TSMC-hikes-rates https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-pr... [5] https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzhou-closes-schools-shanghai-record-cases.html https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzh... [6] https://www.cbsnews.com/news/long-covid-labor-market-missing-workers/ https://www.cbsnews.com/news/long-covid-labor-market-missing...
  - MegaButts 5y ago
    Your points are valid about there being truly unusual geopolitical factors right now which fuck up supply chains, shipping routes, and overall availability of goods. But it's ignoring something much simpler: if you print more money, you're directly obfuscating supply and demand by devaluing your currency. The notion that it's not money printing because it's held by financial institutions is as credible as trickle-down economics. There's still more money in the system, and that system is purposefully using the extra cash to prop up the stock market. You know what the best hedge against unsustainable debt is? Devaluing the currency. Yes, I am making some simplifications. If you really want to get into the details of quantitative easing in the US we can, but honestly it's just noise. You can't escape the concept of supply and demand no matter how opaque your policies are. The M2 money supply has had an enormous increase in just the past few years. https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS I admit I have not had a chance to look at all your links as of writing this comment.
    - arcticbull 5y ago
      Japan has been printing money hand over fist for decades - more than tripling the money supply since 1990 - but their CPI has been dead-ass flat. [1] Money supply matters, but more money doesn't immediately mean higher prices. More money doesn't necessarily mean each unit is worth less than before because it doesn't exist in isolation. What you do with that money matters. [edit] Concrete example: if I print money to build a new port, and that new port leads to a decrease in shipping costs? Then prices go down, meaning each dollar is worth more than before I increased the supply. New money is an investment. It's the liability side of the books. The asset side of the books (what we got for it) matters too! [1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI https://fred.stlouisfed.org/series/JPNCPIALLMINMEI
      - MegaButts 5y ago
        Fair. I'm not an expert on the economy of Japan (although I know a little bit). But in this case the money being printed is being used to prop up the stock market. It's essentially creating an artificial bubble. So yes, you're right. How you use the money matters. But the US government isn't using it to help consumers, it's using it to help corporations. I did not articulate this in my original comment, and concede you're (mostly) right. I maintain that "the money printer goes brrrr" is the main issue in the US, but admittedly I'm not providing as much data as you and your arguments aren't bad.
- space_fountain 5y ago
  I'm not sure what you mean by saying the oil market had already priced in the invasion. Certainly there was a huge jump in oil prices when the invasion started (https://tradingeconomics.com/commodity/crude-oil https://tradingeconomics.com/commodity/crude-oil). I think it's at this point clear that stimulus has had something to do with inflation, but also undeniable that the Russian invasion helped raise oil prices
  - deleted 5y ago
    [deleted]
- randomdata 5y ago
  > You could make an argument it impacted wheat prices. Bids jumped by about 30% when the war began, but the price of wheat was already up by nearly 100% over pre-pandemic levels when we still thought there was little chance of war breaking out.
  - empraptor 5y ago
    report on wheat market outlook from Jan 2021 is interesting to peruse. there's certainly no one simple answer to why the price rose, but it does indicate higher consumption and lower yield overall in the world (higher yield in Russia but lower in China and Argentina) played a role as well as US wheat planting acreage that had been trending down in recent years. and that rising price of corn meant wheat stocks were used as substitute in feed. https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf?v=5058 https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf...
- evrydayhustling 5y ago
  That's not what backwardation means. Backwardation means a recovery of supply is priced in. And we may well see those future "roll up" the curve if war continues to constrain supply. The high prices at the front of the curve are the ones we are experiencing, and they are both driving up the CPI directly (since oil is a component) and indirectly adding costs to other goods since you need actual oil, not oil futures, to undertake production.
  - harambae 5y ago
    Investopedia disagrees "Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market."
    - evrydayhustling 5y ago
      We agree about the definition of backwardation. I am disagreeing with the post's statement that backwardation implies the invasion is "already priced in" to inflation, when at the time of writing they implied a rapid recovery. If you look at the curve since OP, you'll see it's is actually less backwardated than it's been all year (due to repeated releases from the US reserves). But long term futures are near their highest - suggesting a worse picture for impact on consumer prices over time. Source: traded oil futures professionally. Data you can watch: https://www.eia.gov/outlooks/steo/marketreview/crude.php https://www.eia.gov/outlooks/steo/marketreview/crude.php
- imtringued 5y ago
  QE turns illiquid treasuries into liquid treasury soup. No new treasuries are created through QE. The Fed has no control over how much bank reserves banks want to own and how many treasuries the government issues to borrow money. The reason why QE doesn't lead to inflation is so utterly boring it surprises me that people even think it can cause inflation. Once interest rates fall below liquidity preference, people would rather keep their money liquid than invested in fixed term assets (treasuries or certificates of deposit) which means banks need liquid assets (reserves) to match their now increasingly liquid liabilities (your deposits). Banks have learned from 2008 and aren't lending to risky borrowers anymore which means the government is acting as the borrower of last resort.
thepasswordis 5y ago
Is that what Jen Psaki says every single day in front of the cameras? Because I watch it every single day and so far I don't think I've heard anything remotely approximating "The sanctions we have imposed have caused a minor increase in the cost of fuel, but the overall trend is due other factors." Every day it's "Putin Price Hike", and absolutely 0 taking responsibility.
- arcticbull 5y ago
  I didn't say anything like what you claim I did in the first paragraph. The cost of gas going up isn't solely due to sanctions, either. The war that the Russians launched - where they're currently shooting civilians in the street - unprovoked, against a global food exporter. That war of course led to the world using any and all relevant tools including sanctions to punish them. [edit] Blaming the world for the sanctions they imposed on the Russians is like seeing a bully smacking a victim yelling "stop hitting yourself" and saying "yeah! why are you hitting yourself?!" So yeah, the Russians are responsible for large increases in the cost of oil, and food. Are there other factors at play? Sure. A global shipping crisis, a COVID outbreak and lockdowns in China. A lot of pent-up demand chasing limited supply. Snarled supply chains. I do think we'd be much further along getting out of this if the Russians hadn't kicked off their 'special military operation.' What are we blaming the administration for? Continuing the bi-partisan Trump-era QE cycle which allowed America the fastest-ever exit from a recession event (COVID), saving America from a lost decade?
- colinmhayes 5y ago
  I'm not sure if you've ever participated in politics, but deflecting blame is like rule number 1. Please point to a time a prominent politician has ever accepted blame for something.
  - lostdog 5y ago
    Yeah, the current political system and news organizations would absolutely punish Biden for taking the blame on inflation, so the current "it's someone else's fault and also I am fixing it" is just what you get. ...though the certainty that inflation is definitely 100% Biden's fault is a bit unjustified too.
caeril 5y ago
Huh? Inflation has been ramping up FAR in advance of the Ukraine invasion. Producer costs were already spiraling so badly that Powell had to concede that the entire FRB was bullshitting us about inflation being "transitory" in the middle of last year. Hayekian acolytes and hard money advocates have been warning about this on this very site for YEARS, only to be downvoted and shouted down by the dominant Keynesian Central Bank Worshipper HN zeitgeist. No, these consequences have been in the making since Helicopter Ben launched QE. The supply chain shocks introduced by COVID definitely accelerated things, but the outcome was always inevitable. Furthermore, the March print only included a small portion of the Ukraine-related inflation, specifically in fuel prices only. It's going to take several quarters for these high energy costs to filter into the rest of the CPI. So if you think this March print is bad, just wait.
- arcticbull 5y ago
  > Huh? Inflation has been ramping up FAR in advance of the Ukraine invasion. Exiting COVID, lots of demand chasing limited supply, shipping issues, supply chain issues - especially for core inputs like silicon wafers. However, that was well on its way to being resolved, which is what you see in the CPI data in spite of the Russian war. +0.3% MoM vs expected +0.5% MoM. The worst is well behind us. Lumber is way down, corn is flat, soy is flat, consumer discretionary inventories (excluding auto) are up and there's word that demand for chips has peaked too. > No, these consequences have been in the making since Helicopter Ben launched QE. The impact from QE is limited compared to all the above. There's a ton of demand for dollars, not just domestically but internationally. Monetary policy has some, small, impact, but nothing compared to the war, supply chains, shipping issues and labor market issues.
  - adventured 5y ago
    > The worst is well behind us. How can you accurately predict that the worst is behind us, when you don't know the outcome of the Covid tornado wreaking havoc in China? You can correctly forecast how that's going to play out and how it'll impact manufacturing and consumer prices globally? Of course not, nobody can.
billfor 5y ago
Russia only provides 7% of the oil to the US according to https://www.factcheck.org/2022/03/examining-u-s-energy-independence-claims/ https://www.factcheck.org/2022/03/examining-u-s-energy-indep..., and Biden has held up fracking leases according to https://www.wsj.com/articles/joe-biden-suddenly-loves-frackers-oil-industry-11634336080 https://www.wsj.com/articles/joe-biden-suddenly-loves-fracke..., and inflation has started long before the Ukraine war (https://www.zerohedge.com/personal-finance/extraordinary-us-consumer-prices-soar-fastest-over-40-years https://www.zerohedge.com/personal-finance/extraordinary-us-...) so yeah the Biden administration bears some responsibility.
- arcticbull 5y ago
  Yes, 7% of US gas imports, I think 3% of oil imports. But either way, it doesn't matter because it's a global market. While the US' supply isn't threatened because 70% of foreign oil comes from the Mexico and Canada (plus a ton of domestic production) the price is determined in the global markets. As for fracking leases, oil companies have over 9000 approved permits they're not using already, and when pressed on why, CEOs stated it is because shareholders want them to be conservative with capital. I suspect it's because they realize this is all transient and there's no sense investing in the long run to address a short-term spike.
  - bduerst 5y ago
    Yep, oil is a textbook fungible resource and even if you only import <1%, any increases in global price are going to affect the remaining 99% of your costs. It will be interesting to see how energy companies respond to this though. Will they play chicken with Russia to see how long it will hold on the price increase? Or will they start dropping the capex to tap the more expensive resources that the higher price point has unlocked?
    - deleted 5y ago
      [deleted]
- babypuncher 5y ago
  Russia provides a considerable amount of oil to the rest of the world. The US exists in that same market. Countries banning Russian oil makes the price for all non-Russian oil sources go up.
brightball 5y ago
Russian oil was about 8% of the US supply. EDIT: It was a simple comment, not a lecture of how the global economy works. Point was that there is a hell of a lot more causing inflation than the supply of Russian oil. Much higher prices have had nowhere close to the overall impact on CPI that we are currently experiencing.
- BaseballPhysics 5y ago
  > Russian oil was about 8% of the US supply. This comment betrays a deep lack of understanding about how pricing works for fungible commodities. Russian oil is a huge chunk of the world supply, and oil is sold on a global market.
- BaseballPhysics 5y ago
  Following up on your edit: > It was a simple comment, not a lecture of how the global economy works. Well, one can only reply to the comment you wrote, and that comment, as originally written, was misleading at best. > Point was that there is a hell of a lot more causing inflation than the supply of Russian oil. No one is claiming otherwise. But the annualized core inflation rate (6.5%) is dwarfed by the headline rate (8.5%) and the key difference between those rates is fuel and food, both of which are directly affected by Russian actions in Ukraine. Furthermore, as the article notes: "there were signs that core inflation appeared to be ebbing, as it rose just 0.3% for the month, less than the 0.5% estimate" Moreover core inflation, despite factoring out direct fuel costs, is still influenced by fuel costs as fuel factors into the price of many other goods. So that 0.3% increase in core inflation is actually pretty remarkable in that it's lower than I would've expected given the brutal increase in fuel prices. The upshot being, were it not for Russian invasion of Ukraine, I suspect the headline would be "Growth in consumer prices fell slightly in March" as increasing interest rates plus an easing of supply chain issues has reduced pressure on consumer prices. But forget all that, it's way more fun to ignore the actual facts and just expound about the money supply and how we all need to invest in bitcoin and gold.
usr1106 5y ago
Because energy and other resource prices have risen globally Russia has more income today than before Feb. 24 to finance their war. Of course Russian citzens are harmed by the sanctions, but the government's capability to finance their war not so much. Source: "Der Spiegel" yesterday citing a US research institute.
aww_dang 5y ago
Sanctioning Russia, preventing trade and precipitating the ensuing shortages is another item which political leaders could take responsibility for. Interesting how this has been spun.
- aeternum 5y ago
  It's quite interesting that we do not consider the collateral damage of sanctions to be evil like we do with airstrikes. The US sanctions on North Korea for example have caused incomprehensible amounts of starvation, a fate worse than being killed in an airstrike, yet people don't seem to care.
  - aww_dang 5y ago
    Too true. In this case the citizens who consume the pro-sanctions narrative are expected to toe the line while they pay higher prices. "See what Mr. Putin made me do to you, on your behalf!" seems a greater leap than saying, "See what Saddam made me do to those Iraqis on your behalf!"
    - arcticbull 5y ago
      Oh no! Anyways. Yeah if this stops the war I'm all in.
  - arcticbull 5y ago
    Nobody owes another country trade. If a country wants to act out, then it cannot be surprised that countries will stop doing business with them. This is the fault of the Russian administration, not the rest of the world for wanting to avoid trading with a warmonger.
    - aww_dang 5y ago
      The question isn't whether Mr. Putin, his administration or the Russian state is 'owed' trade. It is whether individuals in the west should be able to freely purchase petroleum products. The prohibitions on trade are the fault of those enacting the prohibitions on trade. If you're going to take the realpolitik stance of demanding the necessity of the sanctions as a result of the Russian administration's actions, then where does this train of consequences end? Did the war in Ukraine happen in a vacuum? Were there no precipitating events, no opportunities for deescalation? If the invasion was solely the fault of the Russian administration, then it should follow that the sanctions are solely the fault of those who enacted them.
rajeshp1986 5y ago
The consumer inflation was around 6% before the Ukraine conflict started in March. Its understandable that oil price hike is caused by sanctions on Russia and will affect other commodities too but blaming all the inflation on solely Russia-Ukraine conflict is nothing but a blame game and inability to take control of the situation by WhiteHouse.
- UncleOxidant 5y ago
  > inability to take control of the situation by WhiteHouse. I see this sentiment a lot here, but it's really unclear what the WhiteHouse can do about it. Maybe they should take Gerald Ford's lead and start printing up "Whip Inflation Now!" buttons? Maybe you want a wage and price freeze à la Richard Nixon? The Federal Reserve is where your ire should be aimed. They left rates way too low for way too long kicking the can down the road and now the next kick of the can could reveal it to be a bomb. The way to deal with inflation is the way Paul Volcker dealt with it in 1980: raise interest rates significantly - not these piddly 1/4% raises.
  - jayspell 5y ago
    What they could have done is not cancel the Keystone pipeline. Enact common sense energy policy instead of pushing all their chips into green technology, a key component of which is battery based and whose supply chain is heavily linked to Russia.
    - elihu 5y ago
      What key part of the battery supply chain is Russia involved in?
      - UncleOxidant 5y ago
        Probably they meant Ukraine and Nickel.
      - alexanderdmitri 5y ago
        Russia is the third largest producer of nickel in the world: https://qz.com/2139399/surging-nickel-prices-are-bad-news-for-electric-car-manufacturers/ https://qz.com/2139399/surging-nickel-prices-are-bad-news-fo...
Consultant32452 5y ago
In 2019 a US military funded think tank wrote a prescription for how the US could provoke Russia into over-extending itself. Ukraine plays a central role. Notably, the "risks" section explicitly says that implementing these provocations could result in Russia feeling the need to push further into Ukraine. It's an interesting read. I recommend as you read through the recommended provocations, try to figure out which ones we implemented and what was the result. There's quite a few such as withdrawing from peace treaties, arming Ukraine with lethal weapons, and performing military exercises on Russia's border. https://www.rand.org/pubs/research_reports/RR3063.html https://www.rand.org/pubs/research_reports/RR3063.html If anyone perceives this as being "pro-Putin" don't bother responding. He's an evil dictator who should be in prison for the rest of his miserable life and I'm uninterested in hearing you parrot the regime's propaganda that if you criticize them you must be pro-Putin.
- xadhominemx 5y ago
  This is pro-Putin because you believe his outrageous perfunctory justification for the invasion.
  - Consultant32452 5y ago
    Putin said he invaded Ukraine to kill the Nazis. The Rand paper describes why the US military funded report believes Russia invaded Ukraine, and it's as a result to the provocations we implemented. It's fair to disagree with it, but it didn't come from Russia, it came from a US military think tank.
    - AnimalMuppet 5y ago
      No, by your own words the paper describes how a US-military-funded report believed the US could provoke Russia into invading Ukraine. You still have to show that the US did in fact take those steps, and take them with the intent of causing Russia to invade. Also note that the paper is from 2019. Russia's invasion of Crimea and Donbass was 2014. So Russia was perfectly capable of getting there without the US having to figure out how to "provoke" them.
samhyde69 5y ago
uoaei 5y ago
Oil supply, while still somewhat volatile, is on a stable runway going forward. The reason prices are still high is no longer the war, but corporate margin-padding (read: price-gouging).
fallingknife 5y ago
Oil price is up 66% vs a year ago, and only 10% since the war in Ukraine started. So this is only responsible for a small fraction of the price increases.

mise_en_place 5y ago

I think 1.4 Trillion in asset purchases by the Fed has more to do with inflation than Russia invading Ukraine. You could make an argument it impacted wheat prices. But the oil market already priced the invasion in, it’s in backwardation with farther months trading lower and lower.

arcticbull 5y ago
There's really no basis to think that asset purchases are responsible for this. Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2]. Asset purchases didn't cause the Port of LA to back up (ships still wait in port 18 days [3]). Asset purchases didn't cause a lack of supply of IC manufacturing [4], including due to bad weather. Asset purchases didn't cause COVID outbreaks [5]. Asset purchases didn't cause labor supply issues [6]. I agree the oil market is in backwardation, but this is retrospective CPI, not December 2023 CPI. [edit] Check out the graph on page 7 (11th page in the PDF) [1] It shows you just how little global central bank balance sheets are in terms of the market. It's less than 8.9% of global financial assets, and while it increased a lot recently (for obvious reasons) on average over the last 20 years it's not super dramatic. [1] https://www.fsb.org/wp-content/uploads/P161221.pdf https://www.fsb.org/wp-content/uploads/P161221.pdf [2] https://unctad.org/news/shipping-during-covid-19-why-container-freight-rates-have-surged https://unctad.org/news/shipping-during-covid-19-why-contain... [3] https://www.wsj.com/articles/container-ship-backup-at-southern-california-ports-is-receding-11644523945 https://www.wsj.com/articles/container-ship-backup-at-southe... [4] https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-prices-set-to-rise-into-2022-as-TSMC-hikes-rates https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-pr... [5] https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzhou-closes-schools-shanghai-record-cases.html https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzh... [6] https://www.cbsnews.com/news/long-covid-labor-market-missing-workers/ https://www.cbsnews.com/news/long-covid-labor-market-missing...
- MegaButts 5y ago
  Your points are valid about there being truly unusual geopolitical factors right now which fuck up supply chains, shipping routes, and overall availability of goods. But it's ignoring something much simpler: if you print more money, you're directly obfuscating supply and demand by devaluing your currency. The notion that it's not money printing because it's held by financial institutions is as credible as trickle-down economics. There's still more money in the system, and that system is purposefully using the extra cash to prop up the stock market. You know what the best hedge against unsustainable debt is? Devaluing the currency. Yes, I am making some simplifications. If you really want to get into the details of quantitative easing in the US we can, but honestly it's just noise. You can't escape the concept of supply and demand no matter how opaque your policies are. The M2 money supply has had an enormous increase in just the past few years. https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS I admit I have not had a chance to look at all your links as of writing this comment.
  - arcticbull 5y ago
    Japan has been printing money hand over fist for decades - more than tripling the money supply since 1990 - but their CPI has been dead-ass flat. [1] Money supply matters, but more money doesn't immediately mean higher prices. More money doesn't necessarily mean each unit is worth less than before because it doesn't exist in isolation. What you do with that money matters. [edit] Concrete example: if I print money to build a new port, and that new port leads to a decrease in shipping costs? Then prices go down, meaning each dollar is worth more than before I increased the supply. New money is an investment. It's the liability side of the books. The asset side of the books (what we got for it) matters too! [1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI https://fred.stlouisfed.org/series/JPNCPIALLMINMEI
    - MegaButts 5y ago
      Fair. I'm not an expert on the economy of Japan (although I know a little bit). But in this case the money being printed is being used to prop up the stock market. It's essentially creating an artificial bubble. So yes, you're right. How you use the money matters. But the US government isn't using it to help consumers, it's using it to help corporations. I did not articulate this in my original comment, and concede you're (mostly) right. I maintain that "the money printer goes brrrr" is the main issue in the US, but admittedly I'm not providing as much data as you and your arguments aren't bad.
space_fountain 5y ago
I'm not sure what you mean by saying the oil market had already priced in the invasion. Certainly there was a huge jump in oil prices when the invasion started (https://tradingeconomics.com/commodity/crude-oil https://tradingeconomics.com/commodity/crude-oil). I think it's at this point clear that stimulus has had something to do with inflation, but also undeniable that the Russian invasion helped raise oil prices
- deleted 5y ago
  [deleted]
randomdata 5y ago
> You could make an argument it impacted wheat prices. Bids jumped by about 30% when the war began, but the price of wheat was already up by nearly 100% over pre-pandemic levels when we still thought there was little chance of war breaking out.
- empraptor 5y ago
  report on wheat market outlook from Jan 2021 is interesting to peruse. there's certainly no one simple answer to why the price rose, but it does indicate higher consumption and lower yield overall in the world (higher yield in Russia but lower in China and Argentina) played a role as well as US wheat planting acreage that had been trending down in recent years. and that rising price of corn meant wheat stocks were used as substitute in feed. https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf?v=5058 https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf...
evrydayhustling 5y ago
That's not what backwardation means. Backwardation means a recovery of supply is priced in. And we may well see those future "roll up" the curve if war continues to constrain supply. The high prices at the front of the curve are the ones we are experiencing, and they are both driving up the CPI directly (since oil is a component) and indirectly adding costs to other goods since you need actual oil, not oil futures, to undertake production.
- harambae 5y ago
  Investopedia disagrees "Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market."
  - evrydayhustling 5y ago
    We agree about the definition of backwardation. I am disagreeing with the post's statement that backwardation implies the invasion is "already priced in" to inflation, when at the time of writing they implied a rapid recovery. If you look at the curve since OP, you'll see it's is actually less backwardated than it's been all year (due to repeated releases from the US reserves). But long term futures are near their highest - suggesting a worse picture for impact on consumer prices over time. Source: traded oil futures professionally. Data you can watch: https://www.eia.gov/outlooks/steo/marketreview/crude.php https://www.eia.gov/outlooks/steo/marketreview/crude.php
imtringued 5y ago
QE turns illiquid treasuries into liquid treasury soup. No new treasuries are created through QE. The Fed has no control over how much bank reserves banks want to own and how many treasuries the government issues to borrow money. The reason why QE doesn't lead to inflation is so utterly boring it surprises me that people even think it can cause inflation. Once interest rates fall below liquidity preference, people would rather keep their money liquid than invested in fixed term assets (treasuries or certificates of deposit) which means banks need liquid assets (reserves) to match their now increasingly liquid liabilities (your deposits). Banks have learned from 2008 and aren't lending to risky borrowers anymore which means the government is acting as the borrower of last resort.

thepasswordis 5y ago

Is that what Jen Psaki says every single day in front of the cameras? Because I watch it every single day and so far I don't think I've heard anything remotely approximating "The sanctions we have imposed have caused a minor increase in the cost of fuel, but the overall trend is due other factors." Every day it's "Putin Price Hike", and absolutely 0 taking responsibility.

arcticbull 5y ago
I didn't say anything like what you claim I did in the first paragraph. The cost of gas going up isn't solely due to sanctions, either. The war that the Russians launched - where they're currently shooting civilians in the street - unprovoked, against a global food exporter. That war of course led to the world using any and all relevant tools including sanctions to punish them. [edit] Blaming the world for the sanctions they imposed on the Russians is like seeing a bully smacking a victim yelling "stop hitting yourself" and saying "yeah! why are you hitting yourself?!" So yeah, the Russians are responsible for large increases in the cost of oil, and food. Are there other factors at play? Sure. A global shipping crisis, a COVID outbreak and lockdowns in China. A lot of pent-up demand chasing limited supply. Snarled supply chains. I do think we'd be much further along getting out of this if the Russians hadn't kicked off their 'special military operation.' What are we blaming the administration for? Continuing the bi-partisan Trump-era QE cycle which allowed America the fastest-ever exit from a recession event (COVID), saving America from a lost decade?
colinmhayes 5y ago
I'm not sure if you've ever participated in politics, but deflecting blame is like rule number 1. Please point to a time a prominent politician has ever accepted blame for something.
- lostdog 5y ago
  Yeah, the current political system and news organizations would absolutely punish Biden for taking the blame on inflation, so the current "it's someone else's fault and also I am fixing it" is just what you get. ...though the certainty that inflation is definitely 100% Biden's fault is a bit unjustified too.

caeril 5y ago

Huh? Inflation has been ramping up FAR in advance of the Ukraine invasion. Producer costs were already spiraling so badly that Powell had to concede that the entire FRB was bullshitting us about inflation being "transitory" in the middle of last year. Hayekian acolytes and hard money advocates have been warning about this on this very site for YEARS, only to be downvoted and shouted down by the dominant Keynesian Central Bank Worshipper HN zeitgeist. No, these consequences have been in the making since Helicopter Ben launched QE. The supply chain shocks introduced by COVID definitely accelerated things, but the outcome was always inevitable. Furthermore, the March print only included a small portion of the Ukraine-related inflation, specifically in fuel prices only. It's going to take several quarters for these high energy costs to filter into the rest of the CPI. So if you think this March print is bad, just wait.

arcticbull 5y ago
> Huh? Inflation has been ramping up FAR in advance of the Ukraine invasion. Exiting COVID, lots of demand chasing limited supply, shipping issues, supply chain issues - especially for core inputs like silicon wafers. However, that was well on its way to being resolved, which is what you see in the CPI data in spite of the Russian war. +0.3% MoM vs expected +0.5% MoM. The worst is well behind us. Lumber is way down, corn is flat, soy is flat, consumer discretionary inventories (excluding auto) are up and there's word that demand for chips has peaked too. > No, these consequences have been in the making since Helicopter Ben launched QE. The impact from QE is limited compared to all the above. There's a ton of demand for dollars, not just domestically but internationally. Monetary policy has some, small, impact, but nothing compared to the war, supply chains, shipping issues and labor market issues.
- adventured 5y ago
  > The worst is well behind us. How can you accurately predict that the worst is behind us, when you don't know the outcome of the Covid tornado wreaking havoc in China? You can correctly forecast how that's going to play out and how it'll impact manufacturing and consumer prices globally? Of course not, nobody can.

billfor 5y ago

Russia only provides 7% of the oil to the US according to https://www.factcheck.org/2022/03/examining-u-s-energy-independence-claims/ https://www.factcheck.org/2022/03/examining-u-s-energy-indep..., and Biden has held up fracking leases according to https://www.wsj.com/articles/joe-biden-suddenly-loves-frackers-oil-industry-11634336080 https://www.wsj.com/articles/joe-biden-suddenly-loves-fracke..., and inflation has started long before the Ukraine war (https://www.zerohedge.com/personal-finance/extraordinary-us-consumer-prices-soar-fastest-over-40-years https://www.zerohedge.com/personal-finance/extraordinary-us-...) so yeah the Biden administration bears some responsibility.

arcticbull 5y ago
Yes, 7% of US gas imports, I think 3% of oil imports. But either way, it doesn't matter because it's a global market. While the US' supply isn't threatened because 70% of foreign oil comes from the Mexico and Canada (plus a ton of domestic production) the price is determined in the global markets. As for fracking leases, oil companies have over 9000 approved permits they're not using already, and when pressed on why, CEOs stated it is because shareholders want them to be conservative with capital. I suspect it's because they realize this is all transient and there's no sense investing in the long run to address a short-term spike.
- bduerst 5y ago
  Yep, oil is a textbook fungible resource and even if you only import <1%, any increases in global price are going to affect the remaining 99% of your costs. It will be interesting to see how energy companies respond to this though. Will they play chicken with Russia to see how long it will hold on the price increase? Or will they start dropping the capex to tap the more expensive resources that the higher price point has unlocked?
  - deleted 5y ago
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babypuncher 5y ago
Russia provides a considerable amount of oil to the rest of the world. The US exists in that same market. Countries banning Russian oil makes the price for all non-Russian oil sources go up.

brightball 5y ago

Russian oil was about 8% of the US supply. EDIT: It was a simple comment, not a lecture of how the global economy works. Point was that there is a hell of a lot more causing inflation than the supply of Russian oil. Much higher prices have had nowhere close to the overall impact on CPI that we are currently experiencing.

BaseballPhysics 5y ago
> Russian oil was about 8% of the US supply. This comment betrays a deep lack of understanding about how pricing works for fungible commodities. Russian oil is a huge chunk of the world supply, and oil is sold on a global market.
BaseballPhysics 5y ago
Following up on your edit: > It was a simple comment, not a lecture of how the global economy works. Well, one can only reply to the comment you wrote, and that comment, as originally written, was misleading at best. > Point was that there is a hell of a lot more causing inflation than the supply of Russian oil. No one is claiming otherwise. But the annualized core inflation rate (6.5%) is dwarfed by the headline rate (8.5%) and the key difference between those rates is fuel and food, both of which are directly affected by Russian actions in Ukraine. Furthermore, as the article notes: "there were signs that core inflation appeared to be ebbing, as it rose just 0.3% for the month, less than the 0.5% estimate" Moreover core inflation, despite factoring out direct fuel costs, is still influenced by fuel costs as fuel factors into the price of many other goods. So that 0.3% increase in core inflation is actually pretty remarkable in that it's lower than I would've expected given the brutal increase in fuel prices. The upshot being, were it not for Russian invasion of Ukraine, I suspect the headline would be "Growth in consumer prices fell slightly in March" as increasing interest rates plus an easing of supply chain issues has reduced pressure on consumer prices. But forget all that, it's way more fun to ignore the actual facts and just expound about the money supply and how we all need to invest in bitcoin and gold.

usr1106 5y ago

Because energy and other resource prices have risen globally Russia has more income today than before Feb. 24 to finance their war. Of course Russian citzens are harmed by the sanctions, but the government's capability to finance their war not so much. Source: "Der Spiegel" yesterday citing a US research institute.

aww_dang 5y ago

Sanctioning Russia, preventing trade and precipitating the ensuing shortages is another item which political leaders could take responsibility for. Interesting how this has been spun.

aeternum 5y ago
It's quite interesting that we do not consider the collateral damage of sanctions to be evil like we do with airstrikes. The US sanctions on North Korea for example have caused incomprehensible amounts of starvation, a fate worse than being killed in an airstrike, yet people don't seem to care.
- aww_dang 5y ago
  Too true. In this case the citizens who consume the pro-sanctions narrative are expected to toe the line while they pay higher prices. "See what Mr. Putin made me do to you, on your behalf!" seems a greater leap than saying, "See what Saddam made me do to those Iraqis on your behalf!"
  - arcticbull 5y ago
    Oh no! Anyways. Yeah if this stops the war I'm all in.
- arcticbull 5y ago
  Nobody owes another country trade. If a country wants to act out, then it cannot be surprised that countries will stop doing business with them. This is the fault of the Russian administration, not the rest of the world for wanting to avoid trading with a warmonger.
  - aww_dang 5y ago
    The question isn't whether Mr. Putin, his administration or the Russian state is 'owed' trade. It is whether individuals in the west should be able to freely purchase petroleum products. The prohibitions on trade are the fault of those enacting the prohibitions on trade. If you're going to take the realpolitik stance of demanding the necessity of the sanctions as a result of the Russian administration's actions, then where does this train of consequences end? Did the war in Ukraine happen in a vacuum? Were there no precipitating events, no opportunities for deescalation? If the invasion was solely the fault of the Russian administration, then it should follow that the sanctions are solely the fault of those who enacted them.

rajeshp1986 5y ago

The consumer inflation was around 6% before the Ukraine conflict started in March. Its understandable that oil price hike is caused by sanctions on Russia and will affect other commodities too but blaming all the inflation on solely Russia-Ukraine conflict is nothing but a blame game and inability to take control of the situation by WhiteHouse.

UncleOxidant 5y ago
> inability to take control of the situation by WhiteHouse. I see this sentiment a lot here, but it's really unclear what the WhiteHouse can do about it. Maybe they should take Gerald Ford's lead and start printing up "Whip Inflation Now!" buttons? Maybe you want a wage and price freeze à la Richard Nixon? The Federal Reserve is where your ire should be aimed. They left rates way too low for way too long kicking the can down the road and now the next kick of the can could reveal it to be a bomb. The way to deal with inflation is the way Paul Volcker dealt with it in 1980: raise interest rates significantly - not these piddly 1/4% raises.
- jayspell 5y ago
  What they could have done is not cancel the Keystone pipeline. Enact common sense energy policy instead of pushing all their chips into green technology, a key component of which is battery based and whose supply chain is heavily linked to Russia.
  - elihu 5y ago
    What key part of the battery supply chain is Russia involved in?
    - UncleOxidant 5y ago
      Probably they meant Ukraine and Nickel.
    - alexanderdmitri 5y ago
      Russia is the third largest producer of nickel in the world: https://qz.com/2139399/surging-nickel-prices-are-bad-news-for-electric-car-manufacturers/ https://qz.com/2139399/surging-nickel-prices-are-bad-news-fo...

Consultant32452 5y ago

In 2019 a US military funded think tank wrote a prescription for how the US could provoke Russia into over-extending itself. Ukraine plays a central role. Notably, the "risks" section explicitly says that implementing these provocations could result in Russia feeling the need to push further into Ukraine. It's an interesting read. I recommend as you read through the recommended provocations, try to figure out which ones we implemented and what was the result. There's quite a few such as withdrawing from peace treaties, arming Ukraine with lethal weapons, and performing military exercises on Russia's border. https://www.rand.org/pubs/research_reports/RR3063.html https://www.rand.org/pubs/research_reports/RR3063.html If anyone perceives this as being "pro-Putin" don't bother responding. He's an evil dictator who should be in prison for the rest of his miserable life and I'm uninterested in hearing you parrot the regime's propaganda that if you criticize them you must be pro-Putin.

xadhominemx 5y ago
This is pro-Putin because you believe his outrageous perfunctory justification for the invasion.
- Consultant32452 5y ago
  Putin said he invaded Ukraine to kill the Nazis. The Rand paper describes why the US military funded report believes Russia invaded Ukraine, and it's as a result to the provocations we implemented. It's fair to disagree with it, but it didn't come from Russia, it came from a US military think tank.
  - AnimalMuppet 5y ago
    No, by your own words the paper describes how a US-military-funded report believed the US could provoke Russia into invading Ukraine. You still have to show that the US did in fact take those steps, and take them with the intent of causing Russia to invade. Also note that the paper is from 2019. Russia's invasion of Crimea and Donbass was 2014. So Russia was perfectly capable of getting there without the US having to figure out how to "provoke" them.

samhyde69 5y ago

uoaei 5y ago

Oil supply, while still somewhat volatile, is on a stable runway going forward. The reason prices are still high is no longer the war, but corporate margin-padding (read: price-gouging).

fallingknife 5y ago

Oil price is up 66% vs a year ago, and only 10% since the war in Ukraine started. So this is only responsible for a small fraction of the price increases.