Name: Joshua Griffin

Couse: MGMT3053 International Financial management

ID Number: 400008793

Assignment: Research Paper

Inflation – The Ukraine-Russian War

Inflation is one of the many issues within the current financial environment and is arguably the

most impactful on a global scale as it “has plunged countries into long periods of instability”

(Inflation: Prices on the Rise, n.d.). “Inflation is an increase in the level of prices of the goods and

services that households buy (Inflation and Its Measurement | Explainer | Education, n.d.), and it is

measured as the rate by which these prices change. “The most well-known indicator of inflation

is the Consumer Price Index (CPI), which measures the percentage change in the price of a

basket of goods and services consumed by households” (Inflation and Its Measurement | Explainer |

Education, n.d.). Goods and services used in the index include housing, food and non-alcoholic

beverages, health, and transport. The prices attached to such items are collected via data gathered

from retailers, websites where individuals shop, supermarkets, and energy providers.

“Typically, inflation results from an increase in production costs or an increase in demand for

products and services” (What Causes Inflation?, 2023). This can be broken down into three factors

contributing to inflation. They are cost-push inflation, demand-pull inflation, and built-in

inflation and rising wages. Cost-push inflation refers to when production costs increase resulting

in price increases. Demand-pull inflation relates to “When there's a surge in demand for a wide

breadth of goods across an economy” (What Causes Inflation?, 2023), thus causing their prices to

rise. Lastly, built-in inflation and rising wages contributes to overall inflation “As the price of
goods and services rises, people may come to believe in a continuous rise in the future at a

similar rate” (What Causes Inflation?, 2023). This causes consumers to demand higher wages so as

to accommodate the increase standard of living. Such increased wages transcend into an

increase in costs for businesses, which are passed on to consumers via increased prices.

In recent times, inflation has been on the rise due to events such as the Covid-19 pandemic and

the Ukraine-Russian war. As it relates to the war, Russia’s invasion of Ukraine, devastating for

the Ukrainian economy, is sending shockwaves throughout the globe (Facing Crisis Upon Crisis:

How the World Can Respond, 2022). This is the case as commodity prices have increased.

Commodity markets are in turmoil and financial markets have been highly volatile since the start

of the conflict (Caldara, n.d.). As Russia is regarded as the top supplier of wheat in the world

while Ukraine holds the third spot, export restriction and sanctions imposed have significantly

affected the prices of this commodity. “Before the war, Russia and Ukraine provided 28 percent

of global wheat exports; Russia and Belarus supplied 40 percent of exports of potash, a crucial

fertilizer. Now, grain and corn prices are soaring” (Facing Crisis Upon Crisis: How the World Can

Respond, 2022).

The impact of Russia's invasion of Ukraine has also reached the Caribbean specifically. “The

sanctions imposed on Russia, the world's third largest oil producer with a 12% market share, are

expected to keep oil prices high, which could benefit oil producers” (How The Ukraine War

Impacts Latin America and Caribbean, 2022). As Trinidad and Tobago is regarded as the biggest oil

producing country within the Caribbean, this would therefore benefit their oil industry greatly.

Also “Unlike other regions of the world, LAC is characterized by large oil-producing countries

coexisting with net oil importers. Oil is the main export of Columbia and Venezuela and

represents an important part of the fiscal income of Guyana and Mexico.” (How The Ukraine War
Impacts Latin America and Caribbean, 2022). With increasing oil prices on the market, the oil

multinational companies within these Caribbean territories will benefit. On the other hand,

multination companies within Russia experienced negative impacts due to the heavy sanctions

which were imposed on commodities such as oil and wheat which are major sources of income

for Russia.

To combat the negative impacts of inflation on multinational companies, they should adopt three

courses of action that aided in BorgWarner outperforming the market during the 2008-11

inflationary period. “The company reduced work and the labor required to perform it, including

shifting production capacity in line with customer demand. It centralized information systems to

support more efficient back-office processes, created a global procurement organization to spend

and buy better, and focused capital spending on the most important strategic issues” (6 Strategies

to Help Your Company Weather Inflation, 2023). Taking such approaches will not only help these big

companies to weather the recent rise in inflation but may also help them to grow as

BorgWarner’s automotive supply company was able to “attain 43% compounded annual TSR

growth” (6 Strategies to Help Your Company Weather Inflation, 2023).

 References

6 Strategies to Help Your Company Weather Inflation. (2023, January 10). Harvard Business

Review. https://hbr.org/2021/09/6-strategies-to-help-your-company-weather-inflation

Caldara, D. (n.d.). The Effect of the War in Ukraine on Global Activity and Inflation.

https://www.federalreserve.gov/econres/notes/feds-notes/the-effect-of-the-war-in-

ukraine-on-global-activity-and-inflation-20220527.html

Facing Crisis Upon Crisis: How the World Can Respond. (2022, April 14). IMF.

https://www.imf.org/en/News/Articles/2022/04/14/sp041422-curtain-raiser-sm2022

How the Ukraine war impacts Latin America and Caribbean. (2022, May 4). World Economic

Forum. https://www.weforum.org/agenda/2022/03/ukraine-russia-war-impact-latin-

america-caribbean/?DAG=3

Inflation and its Measurement | Explainer | Education. (n.d.). Reserve Bank of Australia.

https://www.rba.gov.au/education/resources/explainers/inflation-and-its-

measurement.html

Inflation: Prices on the Rise. (n.d.). IMF.

https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation

What Causes Inflation? (2023, February 7). Investopedia.

https://www.investopedia.com/ask/answers/111314/what-causes-inflation-and-does-

anyone-gain-it.asp