Financial Industry Insights from Advisors Asset Management


Russia’s Ukraine Invasion Impact: Higher Inflation, Lower Growth

Russia’s invasion of Ukraine has raised the potential that inflation will climb more than expected and potentially slow growth, increasing the prospect of “stagflation,” which historically has been a good environment for real assets.


  • We believe Russia’s invasion of Ukraine will push inflation higher globally through higher commodity prices. Economic sanctions or physical disruption of supply resulting from the invasion could impair global commodity supplies, leading to higher global inflation. Central banks will now have to weigh the upside risk to inflation against the downside risk to growth.
  • A supply shock could lead to a global growth slowdown in 2022. Since inflation is already elevated, the invasion has increased the chances of an even sharper slowdown in global economic activity than was already anticipated.
  • Higher inflation and slower growth raise the prospect of stagflation. Historically, real assets perform favorably relative to stocks and bonds in “stagflationary” environments.

We believe Russia’s invasion of Ukraine will push inflation higher globally through higher commodity prices.

  • Commodities, including oil, natural gas and wheat rose sharply in the wake of the invasion. Together, Russia and Ukraine are major exporters of key commodities such as wheat, palladium, coal, natural gas and oil.
  • This is a supply shock rather than a demand shock.
  • We think higher commodity prices will push inflation higher across the globe.
  • Central banks, particularly the Federal Reserve, were already set to raise interest rates to combat inflation.
  • Now, central banks will have to weigh upside risk to inflation against downside risk of growth.

A supply shock will exacerbate concerns of a global growth slowdown in 2022.

  • Higher inflation combined with supply constraints resulting from the invasion raise the chances that global economic growth will slow more than anticipated in 2022.
  • Continental Europe is particularly exposed, as those countries are more reliant on Russia-Ukraine commodities than the U.S. or U.K.
  • Navigating near-term monetary policy is likely to become increasingly delicate as the Fed and other central banks balance rising inflation and slowing growth, two economic conditions that have only been amplified by Russia’s invasion of Ukraine.
  • Typically, slower growth would keep central banks from raising interest rates, but given the inflation picture, that may not be the case today.

Higher inflation and slower growth raise the prospect of stagflation.

  • Stagflation is historically a good period for real assets relative to traditional assets such as stocks and bonds.
  • Among real assets, commodities and resource equities are generally the most sensitive to upside inflation surprises, regardless of the growth backdrop.
  • The diversity of a real assets blend that includes commodities, resource equities, real estate and infrastructure may enhance portfolio stability over full economic cycles, potentially helping to offset periods that may be more difficult for generating attractive returns through stocks and bonds.

Impact on real assets.

  • Commodities: An extended period of supply disruptions to commodities is unlikely, but until the uncertainty around this volatile situation dissipates, commodity price risk is skewed to the upside. While we don’t expect direct sanctions on Russian exports of commodities at this time, the potential for supply disruption is still elevated.
  • Resource equities: Western economies are likely to look for alternative sources of energy, which will support North American production and exports of energy to Europe. Europe is also likely to substantially accelerate investments in renewables. Increased investment spending in renewables is likely to lead to faster demand growth for metals. In addition, certain metals that Russia/Ukraine export (platinum, palladium, aluminum, etc.) are likely to maintain a geopolitical risk premium. With reports of both railways and ports closed in Ukraine, the export of crops is at risk.
  • Global listed infrastructure:
    • Utilities: We continue to monitor the impact of exceptionally high energy costs globally on potential customer demand destruction, and political intervention potentially hindering the ability of utilities to pass through higher costs to customers.
    • Midstream energy: The sector indirectly benefits from higher energy commodity prices.
  • Global real estate: No direct impact, although the pace of economic growth drives real estate fundamentals over the medium to long term. Our positioning in Europe is largely in property types such as logistics, health care and self-storage that have either structural growth characteristics or are more defensive in nature, and therefore better able to tolerate an environment of falling growth and rising rates.
  • Preferred securities: European and U.S. bank exposure to Russia and Ukraine is limited, and at this time, we believe the risks to capital are manageable.


CRN: 2022-0307-9849 R

The opinions and views of this commentary are that of Cohen & Steers and are not necessarily that of Advisors Asset Management. 

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit


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