Already, the world was grappling with its major inflation episode. Mild doses of inflation can be positive and stimulative, especially after years of weak aggregate demand, but high inflation carries its own set of risks including the Federal Reserve being forced to choke off economic growth in order to bring price levels down.
Of course, the biggest victims of inflation are people with low incomes at the global level, already struggling to get by, who all of a sudden see increases in the price of food and energy. It's also not a coincidence that these inflationary spirals also tend to lead to political instability and populist uprisings such as the Arab Spring.
The invasion is already a humanitarian crisis for multiple reasons but another consequence is that we could see inflationary pressures exacerbated even more. One factor is that Russia is a major producer of commodities like oil, metals, coal, fertilizer, and lumber. If these suddenly become offline, then prices will rise due to less supply. This would be inconvenient for the world at any time, but even more when the world is already in the midst of an inflationary spiral.
Another factor is that Ukraine is a major source of wheat for Europe. Planting for wheat in Ukraine should begin in 30-60 days. Of course, this doesn't seem likely to happen given that the country is in the midst of a war.
As a result, we are seeing extraordinary strength in fertilizer stocks like Nutrien
If we look at recent events, so many of them were precipitated by responses to previous problems or crises. For instance, the inflation issue is due in part to the monetary and fiscal stimulus that was pumped into the system to offset losses from the pandemic. Only in hindsight is it clear if the consequences are a bigger problem than the initial problem.
With Ukraine, it's certainly a positive to see the world come together to stand up for Ukraine without risking it turning into a bigger confrontation. However, the sanctions against Russia and devastation in Ukraine is likely to have secondary and tertiary effects that investors should monitor.
