There’s a new villain in the US economy: Russian President Vladimir Putin.
The White House now characterizes worrisome inflation as the “Putin price hike.” After the March 10 report showing inflation hit 7.9%, the highest level since 1982, President Biden put out a statement saying, “Families are starting to feel the impacts of Putin’s price hike.” During a March 9 trip to Texas, somebody asked Biden what he planned to do about rising gas prices. “Can’t do much right now,” Biden answered. “Russia is responsible.”
Is it? A look at oil prices during the last 12 months tells the story. A year ago, the spot price for US crude was about $66. By mid February of this year, oil prices hit about $92, up 39%. Markets were not pricing in a Russian invasion of Ukraine at that time, so that oil inflation is due to other factors—mainly surging demand as the global economy recovers from the COVID pandemic and tight supply as big producers such as Saudi Arabia try to beef up profits.
Russia invaded Ukraine on February 24. Europe, the United States and other allied nations slapped tough sanctions on Russia that curtailed Russian oil sales. Since Russia is the world’s third largest oil and gas producer, loss of any Russia supply pushes global prices up. The U.S. spot price peaked at $116 on March 4 but has since dipped back to about $106. So the jump from $92 to $106, a 15% gain, is on Putin.
U.S. gasoline prices follow oil prices, and the trend in pump prices has been roughly the same. Prices averaged $2.86 per gallon a year ago and $3.60 right before the Russian invasion. They’ve now hit $4.20. So yes, the Russian invasion has pushed prices up. But more than half the increase in both oil and gas prices during the last 12 months came before Russia’s war became a factor, and an outraged world responded.
Biden probably hopes you don’t remember that. And for now, the Biden blame game seems to be working. His approval rating, while still low, has ticked up a couple points, aided, probably, by Putin’s own venality. His barbaric war tactics, including attacks on unarmed civilians, have virtually united the civilized world against a common, satanic enemy.
Russia’s aggression will cause more damage the longer it goes on. Higher energy costs around the world will reduce global and U.S. GDP growth. Ukraine and Russia combined produce about 14% of the world’s wheat, with exports endangered and prices of those commodities rising sharply. The cost of nickel, aluminum and other metals from Russia, now subject to sanctions, has also surged. Russians and Ukrainians also comprise about 15% of the global shipping workforce, and some of them may not be able to get to their jobs.
These strains arise, of course, while global supply chains are still battered from two years of Covid disruptions and a related mismatch of supply and demand for goods, a big part of the pre-Putin inflation surge. The Biden White House is preparing consumers for even higher prices during the next few months. “Energy and commodities prices will likely contribute substantially to inflation in coming months,” the White House Council of Economic Advisors said in a March 10 Twitter thread.
Even if voters cut Biden a little slack, for a while, they’re still deeply bummed out. Consumer confidence this month fell to an 11-year low, according to the University of Michigan survey. That reflects gloom about the war, deep concern about inflation and awareness that elevated prices probably are here for a while.
The risks for Biden are many. Consumers’ willingness to sacrifice in the early days of the Russia-Ukraine war could wane if it becomes a stalemate with no end in sight. The war could somehow spread to NATO countries, drawing in U.S. troops. If inflation gets bad enough, it could even cause a recession.
There are signs of stability, too. Some analysts warned that oil prices could easily hit $150 or more if Russian supplies are completely shut off. That hasn’t happened, and oil prices have settled down a bit following the post-invasion spike. Ukraine’s outgunned army seems to be doing a miraculous job against the invading Russians, slowing or stopping many massive assaults and imposing a high cost, in people and equipment, on Putin, who clearly underestimated his opponent.
Putin may know he has miscalculated, and it’s possible he’s now looking for some face-saving way out of what could become a debacle for his underperforming army. But Putin analysts warn that the isolated dictator can’t or won’t accept defeat, which could presage many months of Putin’s abominable value destruction, in Ukraine and in markets. Everything that has happened since February 24 really is Putin’s fault, with no need for Biden to exaggerate the evil.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.