The economic impact of Russia’s invasion of Ukraine is starting to be felt around the globe.
For New Zealand, this will be felt through an increase in our petrol prices, an economist says. Then, spikes in food prices and electronics will be next.
Since the Russian invasion of Ukraine began on February 24, the world has watched as the Ukrainian people have fought to defend their country.
The primary support other countries have provided has been through economic sanctions of Russia, essentially bans on buying or selling anything with the country.
The New Zealand Government urgently passed the Russia Sanctions Bill on Wednesday, which means superyachts and ships can be stopped from entering, and Russian assets in Aotearoa can be frozen, and sanctions can also apply to trade.
This makes it more difficult for Russia to economically continue its invasion, however, this disruption of trade also has financial impacts on the rest of the world.
In New Zealand, fuel prices have increased over the past few months, and have spiked to a record high of $3.11 a litre for 91 petrol.
New Zealand 91 petrol prices, Nov 2021 - Mar 2022. Source.: GlobalPetrolPrices.com
Petrol is produced from crude oil and Russia is currently the second largest producer of crude oil in the world - producing 11 billion barrels a day in 2021.
Brad Olsen, principal economist at Infometrics, said following the invasion of Ukraine, no country is willing to buy their crude oil because of sanctions and ill feeling towards Russia.
“With demand for energy production staying the same and a restraint of how much oil is available in the market, prices are being pushed higher globally.”
Unfortunately, these prices are likely to go even higher, Olsen said, and remain that way for a long period.
“No matter what happens [in the war], it is a bad outlook. You’re not going to see the global community drop its condemnation and sanctions against Russia any time soon,” Olsen said.
“I believe we will see these high fuel prices hold for a long period of time.”
Olsen thinks these sustained high prices will require many New Zealand households to change their transport habits.
“Households may limit how much they go out, being more efficient where they can, and using walking and cycling, public transport to get about.”
“For some, that may mean purchasing hybrids or electric vehicles,” he said.
High petrol costs will also make other goods and services more expensive, as businesses pass on their higher transport costs to consumers, Olsen said.
Food prices
The war in Ukraine is going to make both imported and domestically produced food more expensive, Olsen said.
Russia is the largest exporter of wheat in the world and Ukraine is the largest exporter of sunflower oil.
These are two key ingredients in many foods we import such as baked goods and cereals, Olsen said.
With the drop in the availability of these ingredients, many imported products will get more expensive as a result.
However, it will also make domestically produced foods like bread more expensive, he said.
While most of the wheat we use is imported from Australia, with a drop in wheat availability, that wheat is going to be in higher demand and more expensive as a result.
Food grown in New Zealand is also likely to get more expensive, Olsen said, because fertiliser prices have been driven up without Russian production.
“If the farmer is having to pay more, they’ll have to push that price on to consumers. So the price of meat, dairy and vegetables will go higher still.”
It is unclear how long these elevated food prices will last, Olsen said.
Due to where we are in the growing season, these prices are based on competition for what has already been harvested.
Price changes will depend on how much of these products are produced in the next season elsewhere in the world.
Rare metals
There is already a global shortage of the necessary metals to produce electronics and the war in Ukraine is going to make that worse, Olsen said.
Russia produces significant amounts of the earth’s rarest metals - representing 43 percent of palladium production, 10 percent of platinum and 9 percent of gold.
Without these metals, Olsen said electronics like smart phones, electric vehicles and many others will likely get more expensive as well as also becoming in short supply.
New Zealand economy and people
While the New Zealand economy should weather these disruptions, Olsen said this is going to make an already difficult financial period even worse for many families.
“If we see these pressures continue for too long, households may get stretched too far.
“Many already can’t make ends meet week to week, some are already in crisis.”
“[The longer this lasts], this will be the case for more and more households.”
With little influence on the price of food and fuel, and with recent changes to interest rates still necessary, Olsen said he believed the Government needed to support those worst affected by these price increases.
“There will be more need going forward to support low income New Zealanders to get through this. If the Government wants to help, it will have to provide targeted support.”
More stories:
Russian sanctions regime passes in Parliament
Paralympian creating rideshare service for disabled New Zealanders