Food inflation has largely been caused by Russia, said top economist Paul Krugman.
The Russian invasion of Ukraine has disrupted agriculture and raised prices for fertilizers and natural gas.
“We would certainly see some relief if Vladimir Putin called off this invasion,” Krugman added.
According to top economist Paul Krugman, the rising food prices are largely due to the Russian invasion of Ukraine, not what happened in the US.
The Nobel laureate pointed to the acceleration in food prices over the past year, with the Food and Agriculture Organization’s food price index rising to 123.9 in July. That’s 12% cheaper than food prices last year, but still well above summer 2020 prices, when the index dipped below 100.
Observers have argued that rising food prices are the result of out-of-control spending under the Biden administration, and “greed,” a phenomenon in which companies raise prices in an effort to make even higher profits in times of widespread inflation.
But the main driver of “food inflation” exists outside the US — and is largely in the hands of Russia, Krugman argues. That’s because the Russian invasion of Ukraine disrupted agricultural production in Ukraine, Russia and Kazakhstan, affecting the available food supply and driving up prices. That has increased the risk of a full-blown food crisis developing, experts say, with protests and outbreaks around the world as food becomes scarcer.
Russia even moved to attack major food export hubs in Ukraine, sending wheat prices skyrocketing in July after it pulled out of the Black Sea export deal and bombed the port of Odessa.
The Russian invasion of Ukraine also caused a spike in fertilizer prices, as the country is one of the world’s largest fertilizer exporters. Russian natural gas, used to produce fertilizer in Europe, also became more expensive when Putin cut key pipelines to the continent.
Those factors have worked to drive up food prices, which have been exacerbated by disruptions to agriculture caused by climate change and extreme weather, Krugman said. Yet Russia’s impact is still “top of the list” for culprits driving food inflation.
“Russia is perhaps the only government that can have much influence on food inflation in the world; we would certainly see some relief if Vladimir Putin called off this invasion (which he will not),” he added.
But overall, inflation appears to be cooling as high interest rates in the US keep the economy in check. Overall prices rose just 3% year-on-year in June, well below the 9.1% recorded in June 2022.
Markets now await the release of July’s consumer price index report on Thursday, which should provide more guidance on how inflation responds to tighter financial conditions. Overall prices are expected to rise 3.42% year-on-year, slightly above inflation in June, according to the Cleveland Fed.
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