A readercriticizing the argument that Russia’s expanded invasion of Ukraine cannot explain the acceleration of inflation before February 2022, noting that “the surge in inflation occurred long before the war.” I don’t think this characterization is entirely accurate, but anyway , ahead of the so-called “special military operations”, oil prices have risen, and price pressures have also appeared at the same time.
First, consider oil prices (Brent) and geopolitical risks, as measured by the Caldara-Iacoviello GPR index.
figure 1: Oil price (Brent), $/bbl (blue, left axis), geopolitical risk index (red, right axis). Dotted red line at 2022M02, Russian invasion. Source: EIA via FRED, Caldara-Iakoviello.
Note that oil prices started to rise even before the invasion; as of November, concerns about Russia’s actions were widespread, so this should not be surprising. In other words, before the Russian tanks actually moved further into Ukraine, the cost-push pressure went up.
Figure 2: Oil price (Brent), $/bbl (blue, left axis), HP cyclical components of log CPI (tan, right axis). Dotted red line at 2022M02, Russian invasion. Source: EIA via FRED, CPI, and author’s calculations.
The graph shows that the CPI is 2% above the HP trend through June 2022.
