US inflation figures released tomorrow will mark the first signs of the impact of squeezed commodities supply as economists buckle in for an extended period of high prices.
The US has led from the front in placing heavy sanctions on Russia, most recently banning all energy imports from the country leaving a small but not insignificant 8% hole in the country’s oil imports.
The move is expected to feed into future price increases, with gasoline prices rising more than 22% in the last month to US$4.25 a barrel.
“The higher prices of oil will drive up retail prices of gasoline and home heating oil for U.S. consumers,” said Mickey Levy, chief economist for the Americas at Berenberg.
Soaring wheat prices will also begin to weigh on consumers, both directly through the purchase of staples like bread and pasta, in indirectly through animal feed, increasing costs of livestock.
Russia exported US$8.8bn of wheat in December last year, expected to put some more upward pressure on US prices.
“The higher agricultural prices will be reflected in food prices. These price increases will boost inflation for months to come,” said Levy.
“Food prices comprise 13.4% of the U.S. CPI, while energy prices are incorporated into numerous components of the inflation index.”
Danske Bank noted the current rise in gasoline prices was largely not a result of Russia's invasion, indicating prices will be under even more pressure this month, as the bank forecast CPI of 7.85% for February and 7.9% for March.
In addition, the US labour market is running hot, putting upward pressure on wages, up 5.1% in February 2021, and in turn the prices companies place on their products, feeding the potential for a wage-price spiral.
Stripping out energy, these cyclical impacts are still expected to stress prices, with Danske Bank forecasting core CPI, which strips out volatile energy prices, at 6.3%.
Economists polled by Reuters expected consumer price inflation to hit 7.9% in February when figures are released tomorrow, up from 7.5% in January.
A watchful eye will be kept on inflation expectations, a strong leading variable, with US consumers last month expecting inflation of 5.8% in 12 months’ time.