Editor's note: Liu Chunsheng is an associate professor at the Beijing-based Central University of Finance and Economics. The article reflects the author's opinions and not necessarily the views of CGTN.

The U.S. Bureau of Labor Statistics just released the CPI data for February 2022, and its inflation rate reached 7.9 percent, which is the highest since January 1982. The data shows this is also the most serious inflation that the United States has encountered in 40 years. Excluding food and energy prices, the core CPI rose 6.4 percent, the largest gain since August 1982. The energy index rose 25.6 percent and the food index rose 7.9 percent in 2021, which was the biggest 12-month gain since July 1981.

Preliminary statistics released by Eurostat on March 2, 2022 show that owing to the sharp rise in energy prices, the inflation rate in the Eurozone continued to rise in February, reaching an annual rate of 5.8 percent, which was higher than market expectations and hit a record high for four consecutive months; excluding energy, food, tobacco and alcohol prices, the core inflation rate was 2.7 percent, compared with 2.3 percent in January. The data showed that energy prices in the Eurozone rose by 31.7 percent year-on-year in February, which was obviously the main reason for the increase in inflation in the month.

Major European economies all suffered from a high inflation rate in February. It was 5.5 percent in Germany, 4.1 percent in France, 6.2 percent in Italy and 7.5 percent in Spain.

The Russian-Ukrainian crisis is an important reason why Europe and the United States are facing inflation. Russia is currently one of the world's most important energy suppliers. The country's oil and natural gas production ranks second in the world. Russia is also the second largest oil exporter and the largest natural gas exporter. Its oil and natural gas exports take up about 25 percent in the world market, and Europe is the main destination of Russia's energy exports. Russia's oil and gas exports to Europe account for 50 percent and 78 percent of Russia's total exports respectively.

Recently, Europe and the United States have imposed sanctions on Russia. They jointly kicked Russia out of the SWIFT system, which means that Russia's international energy trade and international settlement have been greatly blocked to the world market. Subsequently, many European and American countries claimed to consider sanctions against Russia's energy sector, including the implementation of the oil and gas trade embargo. Germany announced it will suspend the certification process for the North Stream 2 natural gas pipeline, further raising concerns about the expected disruption of Russia's energy supply.

Once the sanctions imposed by Europe and the United States on Russia's energy sector are implemented, it means that about 25 percent of the world's oil and natural gas supply will face disruption, and the impact on the global energy market is immeasurable. Especially in the Eurozone, there will be another energy crisis.

In addition, Russia and Ukraine play an important role in the global wheat trade. In 2021, their export volume accounted for more than 30 percent of the global trade share. Ukraine is also the fourth largest exporter of corn in the world. Therefore the Russian-Ukrainian crisis has exacerbated the rise in food prices.

Compared with the sharp rise in energy and food prices brought about by geopolitics, another important source of inflation in the Eurozone and the United States is the impact of currency overissue. Since the outbreak of the COVID-19 pandemic, the United States has implemented an extremely loose monetary policy, cutting interest rates to zero, coupled with unlimited quantitative monetary easing, which has led to the expansion of the U.S. government's debt and the size of the Federal Reserve's assets to an historical level. The Eurozone has also formulated a loose monetary policy to combat the economic downturn brought about by the pandemic. Before the outbreak of the Russian-Ukrainian crisis, the European Central Bank kept the main refinancing rate unchanged at 0 percent and the marginal lending rate at 0.25 in February 2022.

The situation in the United States is more complicated. Former U.S. President Donald Trump launched a trade war against China after taking office, and imposed high tariffs on almost all goods exported from China to the United States, which obviously exacerbated the inflation.

The current inflation in Europe and the United States has both demand-side factors and supply-side shocks. If it is not solved well, it may drag down the recovery of the world economy and even bring about stagflation.

First of all, the world should avoid further deterioration of the situation in Russia and Ukraine, prompt both sides to return to the framework of the United Nations to resolve disputes and alleviate risks through negotiations rather than war and sanctions.

Second, the European and American central banks should formulate a timetable for exiting the loose monetary policy to give the market and consumers reasonable expectations.

Third, large economies should strengthen cooperation rather than confrontation. For the United States, the cancellation of tariffs against China will help ease inflationary pressures.

In the long run, countries should also accelerate the development of new energy industries to avoid the impact of geopolitical conflicts on the international energy market.

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