Oil shocks need not stoke inflation

Oil shocks need not stoke inflation

Good morning. Ethan here; Rob’s off reeling in a big catch, hopefully.

Monday was a brutal day in Ukraine. The latest reports are that Russia is shelling cities as civilians evacuate. The death toll, already grim, is climbing. Western nations are discussing a Russian oil import ban, so stocks fell and oil soared.

Today, I look at two economic questions this war has posed. Disagree with me? Agree profusely? Email me: [email protected].

Are oil shocks inflationary?

Shock and awe might not describe Russia’s invasion of Ukraine, but it certainly fits the reaction in commodities markets. Wheat prices are at all-time highs. Nickel is spiking. Oil brushed $139 per barrel yesterday, with some talk that it could yet reach $200.

High inflation, uncontrolled energy prices, geopolitical turmoil — it’s a wide-open door for 1970s US stagflation comparisons. And former Treasury secretary Larry Summers walked right through it on Friday, telling Bloomberg TV that America faces “real risks of a 1970s-type scenario” stemming from an oil shock and excessive, inflationary stimulus.

Federal Reserve chair Jay Powell’s congressional testimony last week was mostly boring. But in it, he too hinted at a stagflationary view of oil shocks. From Howard Schneider of Reuters:

The idea is that pricier energy (and, to