COMP News – Many economists suspect that economic turbulence caused by the ongoing Russian invasion of Ukraine could affect rates of inflation in the US. Economists are bracing for a suspected increase in the cost of oil, a major component of US spending.

That’s because Russia is a big global producer of oil and any disruption to its output through either sanctions or strife could send oil prices sharply higher. Already oil prices have moved higher in anticipation of trouble coming down the line.

Higher oil prices can filter to the US consumer through more expensive gasoline and other energy costs — like heating oil. Rises in those prices would only push inflation higher — and push the Federal Reserve to increase interest rates to smother price increases.

Many economists expect the US to place sanctions on Russian oil as retaliation to their aggression in Ukraine.

The Russian invasion of Ukraine has stoked fears that the oil market could see further shocks. Crude surged past $105 a barrel on Thursday.

Meanwhile, in the next two weeks, the average price of a gallon of gasoline in the US could reach $3.75. If the geopolitical tumult continues, it could hit $5 a gallon within months, experts warn.

These factors will only steel the Fed’s resolve to raise interest rates, observers say.

Despite record increases in inflation, consumer spending still rose in the month of January, showing that US consumption is not yet suffering due to high inflation.

Meanwhile, American household spending jumped by 2.1% in January, surpassing the 0.8% in December. When adjusted for inflation, consumer spending jumped 1.5% in January after declining 1.3% in December.

“Never underestimate the American consumer,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

To read more about the impact of oil prices from the Russia-Ukraine war, click here.

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