Is war inflationary?

With war- wider war is coming (Iran on Israel), nothing much positive in sight…
Reading articles from 2 years ago was pretty insightful.
Will it be inflationary again? I think it will

The Long-lasting Economic Shock of War

The Reasons Why A War In Ukraine Will Make Inflation Worse

War and conflict often lead to high inflation

 

Political uncertainty in the middle east usually results in higher oil prices. But american oil production and lower chinese use might mitigate that a bit.

but then, the consumer part of inflation seems to be reacting faster since the 1970s.

would bet on recession more than significantly higher inflation.

 

Of course.

Government spending rises, production and resources shifted to items needed for war (reducing it to other areas), supply disruptions etc.

In truly big wars inflation readings can be misleadingly low because government introduces rationing and price caps, and there is an element of national unity etc. In those cases inflation pressure build up and then inflation just surges post war.

 

PQ=MV

left side is the value of all goods=right side is the amount of money changing hands.

War -> lower Q, which means higher P (in the absence of a monetary response). I don't think this will carry into the housing market.

 

War is sure inflationary but to what extent is the harder question to answer. Supply chains are so different these days post covid and so is demand.

Usually the US would be able to ask the Saudis to ramp up oil production but these days i don't think the US has this much sway on that front especially with the ongoing war in Gaza.
And the Ukrainians have been bombing Russian refineries as of late...
So oil have a a very good chance of getting much higher IMO

 

War would lead to currency devalue I believe. But question for Austraian economy is if China is going to get dragged in/take initiative in the region. If no then we are well positioned to grow positively.

If APAC region gets hot then we may be screwed in the short term financially

 

Hopefully things will de-escalate because if not, the ramifications will be immense and will be worldwide.

I would think that Oil would hit the roof (good for Russia) and and would bolster the chances of Ukraine losing the war against Russia as the US won't have the capacity to support both countries i think.

Too many scary things happening at the moment, let's hope we don't reach those kind of scenarios.

 

To the question by OP: War is generally inflationary through supply constraint not global liquidity. If quantitative easing takes place during the war, this then this is very inflationary. As two elements will contribute to this.

 

Generally yes.

supply chains backed up = more expensive goods.

monetary easing (to pay for arms and aid) = more money supply.

As always.. hold assets!

 

and it starts by today:

Crude oil prices jump 4% on reports of Israel strikes on Iran; Brent crude above $90 a barrel

 

yes and no.

Oil prices certainly are impacted negatively by war, but the Saudis also want to keep oil prices high to pay for their developments.

Oil price is manipulated through reduction of production more so than its impact from war in the area.

We would have fuel at $1 a litre quite easily if the OPEC+ allowed it to be. The problem is they won't.

 

A world war is inflationary to the point currencies are worthless. We will be back to hunting and foraging.

 

It depends how the war is funded. But they are usually funded by running deficits funded by central bank debt monetisation.

If we funded wars in an honest way (by raising taxes) we wouldn't get inflation - we would also get fewer wars....

 

There's not going to be a world war both sides are despicable, noone except some loonies in the US and Russia want to get involved militarily.