Russia's invasion of Ukraine will trickle down and impact the cost of California’s consumer goods because of energy required in production and transportation, according to an economics professor.
“The autonomous effect is the higher price of oil,” said Gokce Soydemir, an economics professor at California State University–Stanislaus. “The effect resulting from that is truckers paying a higher price for fuel. They will add a surcharge so the grocery market will pay higher at the wholesale level. The higher costs will be passed on to the consumer. So, the consumer can expect to pay more for those consumer goods.”
In Gorda, which is a small settlement of filling stations, restaurants, and motels, the price of gasoline has already surged past $7 a gallon, according to Gasbuddy.com.
“This Russia-Ukraine war couldn't come at a worst time,” Soydemir told the Southern California Record. “We were already suffering from supply shortages, inflation, rate hikes, and now this. It just adds fuel to the fire.”
As previously reported by CNBC, the price of oil increased 11% to $106 a barrel this week, a seven year high.
“Interest rates were expected to lower increases in home values a little bit but with this Ukraine Russia crisis, inflation is likely to last longer than initially feared,” said Soydemir, who is a Foster Farms Endowed Professor.
He added that inflation is "pretty much anchored or driven by the price of oil...So, inflation will last into the second quarter. We were expecting for it to decrease a little bit at the end of the first quarter but not anymore. It's easily going to last into April, May, and June. When that happens, obviously inflation is going to drive home values even further up.”
The average price for a home in Los Angeles is close to $900,000.
The Federal Reserve will convene on March 16 and is expected to increase interest rates, according to media reports.
“The federal funds rate is going to increase,” Soydemir said. “The question is whether it will increase by a quarter percent or 50 basis points. Given the war going on, the Federal Reserve might go ahead with an increase but less than expected. Everybody is expecting 50 basis points but it might be less than that.”
Soydemir also predicts the war in Ukraine will contribute to stock market volatility.
“When the stock market is rattled, retirement portfolios will be hit hard because the prolonged negative impact coming from the Ukraine Russian crisis is uncertainty,” he said. “Investors do not like uncertainty because it adds risk where there is already a risk. Because of this, investors will refrain from investing, which negatively impacts retirement portfolios.”