Oil prices have jumped well above $90 a barrel in recent weeks as the risk of a Russian invasion has increased.
If the Russia-Ukraine crisis drives oil to about $110 a barrel, inflation in the United States would exceed 10% on a year-over-year basis, according to a new analysis by RSM shared exclusively with CNN.
“We’re talking about a real short-term shock,” said Joe Brusuelas, chief economist at RSM.
“Heating the home and putting gasoline in the car will become more expensive in the immediate aftermath of a Russian invasion,” Brusuelas said, adding that there would be a “shock to consumer confidence” and diminished corporate investment.
Brusuelas estimates that a roughly 20% increase in oil prices to around $110 would lift consumer prices by 2.8 percentage points over the course of the following 12 months, lifting inflation above the 10% threshold. That would run counter to current expectations for inflation to gradually cool off from elevated levels.
However, the impact to the broader economy could be less dramatic.
Brusuelas estimates a jump to $110 oil would shave slightly less than one percentage point from US GDP over the next year.
Still, the inflation spike would likely put renewed pressure on the Federal Reserve to step up its fight to get prices under control by raising interest rates significantly.
