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The recent military events between Russia and the Ukraine have led to a spike in commodity prices, similar to what has taken place before the last several U.S. recessions.

One of the economic impacts of the recent military events taking place between Russia and the Ukraine has been a large increase in commodity prices (energy and some metals and agriculture).  This has been especially true for carbon-based energy prices in Europe that are dependent on Russia and commodities that are produced in the Russia/Ukraine region.

Source: Macrobond.

Our economic view prior to the onset of military conflict in this region was that the rate of change for economic growth and inflation in the U.S. was going to decelerate in 2022.  While commodity prices have increased recently, this is occurring at a time when consumer and corporate profits are slowing and will likely have a negative impact on demand, which will lead to a decline in prices over time.  Historically, over the last thirty plus years, recessions and economic slowdowns have been preceded by large increases in commodity prices (especially energy/oil).  Below we go through some examples.

In 1989, real GDP growth was slowing on a rate of change basis heading into 1990.  Oil prices spiked at the start of the Gulf War and GDP growth turned negative and a recession began in the second half of 1990.

Source: FRED.

In 1999, oil prices started to increase significantly and peaked at a rate of change basis at the beginning of 2000, as did economic growth.  GDP growth slowed on a rate of change basis throughout 2000 and ended in a recession during 2001.

Source: FRED.

In the lead up to the financial crisis and recession from 2008-2009, oil prices rose into the middle part of 2008 before economic growth declined dramatically and a large recession took place.

Source: FRED.

Oil prices also rose in 2011 and 2018, leading to a deceleration in rate of change of economic growth but not an official recession.

Source: FRED.

Spikes in the prices of consumer staples like grains/agriculture can also have negative economic and social impacts.

During these historical periods of rising oil prices, monetary policy has also tended to respond to the increase in commodity/oil prices by hiking short-term interest rates.  These movements have also contributed to decelerations in economic growth and led to recessions.

We are currently entering a period of rising commodity prices, a likely slowdown in consumer income and spending based on difficult comparison, and the Federal Reserve has guided toward a series of interest rate increases.  This combination will likely lead to a deceleration in the rate of change for economic growth.  A decline in demand and a potential recession will likely lead to a decline in prices and the rate of change for inflation in 2022.


The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.


Senior Vice President, Investment Strategy
Boyd Watterson Asset Management, LLC