The US Federal Reserve has just reassured the markets that it doesn’t expect inflation to get out of hand in the coming months. It comes as concerns about serious inflation damaging the global economy have reached fever pitch, particularly since recent Labor Department data showed that American inflation rose 4.2% over the 12 months ended April – the highest since the global financial crisis of 2007-09. In the euro area, inflation seems certain during the rest of this year to break out above the European Central Bank target of “close to but below 2%”.
Central bankers on both sides of the Atlantic say that these price rises are a temporary consequence of the whiplash effect of the COVID-19 pandemic on demand. Supply chains in everything from commodities to semiconductors have been disturbed ……
The latest American sanctions salvo against Russia announced on 6 April amounts to a major escalation in the economic war which – with real, and potentially nuclear, war being unthinkable – has been the preferred response of US and EU to the geopolitical challenge from Russia that began with the annexation of Crimea in 2014. There is more to these sanctions than geopolitics, however. They also teach us an interesting lesson about globalisation.
To understand that lesson, we must first establish how these new sanctions differ from the previous ones imposed at various times since 2014. In economic terms, the only kind of sanctions that count are those targeting (Russian) companies rather than individuals, whether big business owners (‘oligarchs’) or officials. Until this month, the scope of sanctions against various Russian companies was tightly defined and limited. Typically, sanctions prohibited lending to those companies (except for the shortest maturities) and, in the case of the oil companies on the list, the transfer of certain technologies that would help the Russian oil industry accelerate development in new areas such as deep-water and tight oil drilling. In the case of the companies included on the latest US sanctions list – owned by two Russian tycoons, Oleg Deripaska and Viktor Vekselberg – the measures are much more comprehensive. Any type of transaction with those companies is prohibited.