Even as COVID-related mandates begin to ease in the United States, other impacts are being felt from a combination of economic and geopolitical factors, and the Russia-Ukraine conflict is playing right into it. Supply chain experts predict prices for goods such as computer chips, a gallon of gas, and groceries will continue to increase in the coming months. How it ultimately affects small businesses across the country is also yet to be seen.
Higher energy prices stand to hit consumers when inflation is already at its highest level in 40 years (7.5% from a year earlier). Economists are estimating energy costs for U.S. households could rise by $750 on average this year from last year, leaving them with less money to spend on other goods and services. For lower-income households, a huge amount of their income goes towards gasoline, which will put a dent in consumer spending.
American consumers were already feeling the cost-of-living pinch. The prices of new cars (even used ones!) and food are up after the COVID-19 pandemic, so the Ukraine invasion and what’s to follow could continue inflation pressures.
Russia and Ukraine combined only account for not even 1% of U.S. imports and exports, so there will be no large hits on our economy from the conflict if we’re talking trade. Unlike the European allies, our country also produces and exports its own natural gas, so we are at an advantage in that respect.
What about imports? Russia is the world’s largest supplier of palladium, used by automakers for catalytic converters and to treat car exhaust fumes. The price of palladium is up, and any disruption of Russian supplies will impact auto production, already enduring semiconductor chip shortages. Russia and Ukraine collectively export more than a quarter of the globe’s wheat. Ukraine is a major corn exporter. Even though agricultural commodities might not be felt as strongly here on consumer prices, it could still add costs in the coming months to products containing these ingredients. Consumer spending could suffer.
The Federal Reserve increased the Federal Funds Rate to slow inflation, but that also puts downward pressure on the economy. Multinational corporations have higher, inflation-induced expenses and decreased revenues from a diminished customer base (from not operating in Russia). The downward pressure on multinationals further complicates what’s happening at home. Consider America’s “coal mine canary:” small businesses. As costs rise, smaller enterprises will be among the first to indicate how our economy will be impacted by sanctions imposed in response to Russia’s invasion of Ukraine.
Vladimir Putin’s move into Ukraine will undoubtedly affect trade and shift the economies within Europe, but it might also affect the United States in other ways. We have yet to see if Russia will try to counter-sanctions with cyberattacks on U.S. or European financial infrastructures, energy suppliers, or other businesses; many major domestic companies are tightening security wherever possible (after all, ransomware and hacks don’t come cheaply).
Economics aside, what’s most important in your life is still right in front of you: Your family, your friends, your home, and your community. It’s a great time to dodge the media noise and sensational headlines; go connect with those around you and get out into nature. Especially if you’re feeling helpless about what’s happening on the other side of the globe, remember you can always control your immediate environment and how you choose to live in it. We have a lot to be thankful for, and we’ll get through these changing times together.
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