Last week we noted here that the effects of the war in Ukraine on the Western economy are insignificant. As soon as the email was published, abusive conversations began to arrive, some of which were matter-of-fact and wondered how it could be said that oil at $ 120 a barrel is insignificant and some simply accused us of collaborating with Putin. The shirt of the Russian team he bought at the 2018 World Cup and hopes that the next time he has the courage to wear it it will still be in the right size. For the first case we will expand a little more. Much less First of all, even before the war in Ukraine inflation around the world raised its head so that an average increase of about 0.5% to inflation (more in Europe, less in the US) as a result of price increases is not critical in the sense of changing central bank monetary policy. True, every tenth percent of inflation erodes consumers ‘purchasing power but for a moment did not argue that the war would not cause a certain slowdown but only that it did not justify sharp declines in firms’ profitability. To what extent will the increase in the price of fuel cause the Israeli consumer to reduce his clothing and footwear purchases? How much will it affect the real estate market? The banks? Probably not too much. Therefore, we still estimate that without extreme scenarios (failure at a nuclear power plant as a result of environmental warfare is definitely an extreme scenario) the impact on Western economies is mainly reflected in rising commodity prices and this impact is not significant enough to lead to continued decline in stock markets.
On the other hand, if we look for a moment at non-Western economies, the language of the picture is completely different. Many countries depend not only on gas and Russian oil but mainly on wheat that comes from Ukraine and Russia. Turkey, Egypt Tunisia and African countries like Nigeria and Kenya are the major wheat importers from Ukraine and Russia and are definitely in trouble. In economies, the effect of the prices of agricultural commodities on inflation is much more significant than in developed economies (both the weight of the food item is higher and the share of the commodities themselves in the pricing of final food products). Therefore, the fact that the UN food price index first returned to the level it was at in late 2010 raises concerns about riots and civil unrest similar to those that occurred during the Arab Spring.