Russia/Ukraine: near-term inflation; long-term decoupling

A Russian invasion of Ukraine or severe ratcheting up of sanctions would add as much as 2%-pts to inflation in DMs, particularly in Europe. Given the inflationary backdrop and hawkish signals from central banks, monetary policy could be tightened more aggressively as a result, although fiscal policy could be loosened to cushion the blow to real incomes. Over the longer term, whether Russia ends up invading or not, this geopolitical flare-up is likely to speed up the process of Russia’s decoupling from the West. In view of the wider interest, we are also making this Global Economics Update available to clients of our Commodities Overview Service.