Russia’s War in Ukraine Raises Gas Prices and Unsettles Stocks

Current gasoline prices already surpass the previous records, which were set in the summer of 2008, if you don’t account for inflation. If you do take inflation into account, the picture isn’t very comforting, either. In July 2008, it cost roughly $5.35 for a gallon of regular in today’s money. Remember what happened next? Two months later, Lehman Brothers collapsed, helping to set off a global financial crisis, a stock market crash and a severe recession.

Gasoline and oil prices were not the immediate causes of those calamities but, as James D. Hamilton, professor of economics at the University of California, San Diego, concluded in a paper in 2009, they “made a material contribution” to the recession.

A regressive tax on working people

Price increases for gasoline and other basics are already hurting people with tight budgets who must drive to work or school — and who can’t cut back on food purchases.

Yardeni Research, an independent economic and stock market consultant, estimated that the average American household would spend roughly $3,100 on gasoline in 2022, based on price levels in December 2021. The price increases since then mean that households would have to pay about $2,000 more.

That’s not a big deal if you’re wealthy or if you own an electric vehicle. But for many working people, it’s equivalent to a tax.

“A lot of people have little choice,” Mr. Ashworth of Capital Economics said. “They have to drive.”

In addition, food prices have been increasing. Russia and Ukraine accounted for 28 percent of the global wheat trade and 18 percent of corn exports last year. The futures price of wheat has risen 36 percent this year and 27 percent since the war started on Feb. 24.

The story is similar for corn, barley and sunflower oil, commodities for which Russia and Ukraine are major players. Shipments through Black Sea ports have been obstructed, financial sanctions are limiting trade — and futures prices are spiking.

Article source: https://www.nytimes.com/2022/03/10/business/russia-ukraine-war-gas-prices.html