The surge of commodity prices from the Russian invasion makes for a striking parallel between the 2020s and the 1970s.
A woman leaves a currency exchange office in Saint Petersburg on March, 2, 2022. Photo: Olga Maltseva/AFP via Getty Images
It can be risky to draw too many historical parallels when analyzing the economy. Whatever the similarities between the current economic moment and any past episode, they're usually dwarfed by the differences.Still, the surge of commodity prices that has accompanied the Russian invasion of Ukraine makes for a striking parallel between the 2020s and the 1970s.The conflict in Eastern Europe risks affecting the economy in similar ways as the oil embargo of five decades ago.
That's the kind of price shock that central banks can't do anything about. But coming as it did at a moment of already-elevated inflationary psychology, it helped cause expectations of ever-rising prices to become more entrenched Moreover, it heightened generalized discontent with the economy, the sense that things were coming unmoored beyond the details of any given piece of inflation data.Now, too, inflation is already high, in part due to government spending rising wages. And the war in Ukraine is causing commodity prices to soar.
The risk is that, as in 1973, external geopolitical events reinforce pre-existing trends in the domestic economy, while simultaneously making it politically harder for policymakers to fight inflation.That's not how Fed chair Jerome Powell views it.
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