Despite the efforts of the Fed, we are probably stuck with moderately high inflation for the rest of this year. Unless, of course, Putin ends his misguided adventure in Ukraine.
Besides upsetting the shipping systems of the world- between the blockade of the Black Sea and the longer shipping times to avoid Russian air space, there are still other factors.
During wars, countries add on military expenses. (Consider Germany’s agreement finally- to up its military spending to 2% or higher of GDP.) These higher military expenditures strain the normal productive capacity of nations. (Obviously, Ukraine’s productive capacity is under water, with all the destruction of homes, factories, and the like.)
As mentioned above, wars almost always involve sanctions, embargos, and detours to avoid conflict regions. As such, supply chains get elongated- if not severed. (Not to mention that China is currently experiencing another pandemic wave, which is hurting the delivery of many goods around the world, since the Chinese response is to lock the region down tighter than a drum.)
Finally, as will be seen each week, countries end up spending way more money, so they print more money. Even though we are not participating in a hot war, we are shipping humanitarian supplies and ordinance to Ukraine- and that was not anticipated in our budgets.
Of course, if we can convince our petrochemical industry (as I have often mentioned) to up its production of fuel, the price of oil will drop. And, that will lower the transportation cost of every single item we buy, which can tamp down inflation. Not to mention that it could bankrupt Russia- and force them to withdraw from Ukraine.
But, we should be prepared for inflation to reduce our ability to purchase items we want for the price we want to pay.
How I wish they would open our pipe line and start fracking!
I’m with you on that, Martha.