Russian invasion of Ukraine

Ukraine war: what happens to my money? The consequences for savers and consumers

Russia’s attack on Ukraine is putting pressure on the economy. Raw material prices are rising. Consumers and savers have to prepare for turbulent times.

Frankfurt/Main – The USA and the EU have launched extensive punitive measures after Russia’s attack on Ukraine. Washington wants to isolate large Russian banks internationally in the Ukraine conflict and is imposing export controls on the technology sector.

The new EU sanctions against Russia over the Ukraine war affect the energy, finance, and transport sectors, for example. There should also be export controls. Global stocks tumbled in the wake of the invasion, while commodities are expected to tighten, which will push up prices and could fuel inflation further. Concerned consumers, savers, and investors are asking: “What will become of my money?”

What are the consequences of rising commodity prices?

Inflation in Germany and the euro area has been fueled for some time by significantly higher energy prices as part of the global economic recovery. Commodity prices continued to rise after the Russian invasion of Ukraine: a barrel (159 liters) of North Sea Brent cost more than $100 on Thursday for the first time since 2014. Other raw materials such as wheat also became more expensive on the world market. In the end, rising raw material prices usually end up with the consumer because producers pass on higher purchase prices in whole or in part.

“The inflation rate will probably continue to rise, at least in the short term, above all because of a further increase in energy bills for consumers,” said DZ Bank chief economist Michael Holstein. “This weakens their purchasing power and tends to reduce the demand from households for other goods and also increases costs for companies.”

In response to rising energy prices, the governing coalition decided on a relief package. From July, citizens should no longer pay the green electricity surcharge. A higher flat rate of 38 cents is planned for commuters from the 21st kilometer retrospectively to the beginning of the year. Whether the measures are sufficient is controversial. Rising consumer prices hit low-income households particularly hard.

What does the development of inflation mean for savings?

Rising inflation rates are bitter for savers. According to calculations by Comdirect, which belongs to Commerzbank, savers in Germany lost a total of 80 billion euros last year because of low-interest deposits. In the fourth quarter of 2021 alone, the real interest rate – i.e. the interest rate for savings deposits after deducting the inflation rate – was at a record low of minus 4.93 percent.

In the search for alternatives with better interest, investors should not be blinded by the extraordinarily high-profit promises. The financial regulator Bafin warns that fraud is often behind it: “There is no such thing as ‘safe, quick money”. Investments in crypto assets such as Bitcoin, Ether, and Co. are highly speculative and just as risky. The Federal Financial Supervisory Authority warns that the money invested may be lost altogether.

How will the European Central Bank react?

Other major central banks such as the US Fed and the Bank of England have already changed course after years of flooding the markets with cheap central bank money. Since the meeting of the ECB Council at the beginning of February, there has also been agreement among Europe’s currency watchdogs that the stubbornly high inflation cannot be sat out. The European Central Bank (ECB) could take countermeasures by raising interest rates.

However, Europe’s currency watchdogs have committed themselves to halt net bond purchases worth billions before taking interest rate hikes. Economists expect the ECB Governing Council to make a decision to exit the ultra-loose stance at its next monetary policy meeting on March 10. However, big steps should not be expected – especially not now that the escalation of the conflict over Ukraine is adding to the burden on the economy, which is still being slowed down by the pandemic.

“The geopolitical tensions are currently a very important risk factor, especially for Europe,” ECB chief economist Philipp Lane told the “Frankfurter Allgemeine Zeitung”. Recent geopolitical developments have “impacted not only on oil and gas prices but also on investor and consumer confidence, trade and so on,” Lane said.

How do crises affect the stock markets?

Stock markets around the world plummeted after the attack on Ukraine. “The worst fears have come true. There is war in Europe,” said portfolio manager Thomas Altmann of QC Partners. However, an often-quoted stock market wisdom is: “Political stock markets have short legs”. In other words, politicians are not able to permanently influence the capital markets in one direction or the other.

“Political crises usually have a negative impact on the stock markets. How strong and how long depends on the course of the respective crisis,” says the head of Deutsches Aktieninstitut, Christine Bortenlänger. The stock institute repeatedly refers to historical data, according to which perseverance usually pays off when investing in shares.

How safe is gold in times of crisis?

Many investors regard the precious metal as a safe haven in turbulent times. Despite price fluctuations, it never completely loses its value. The disadvantage: There is no interest or dividends for gold. Ultimately, the return can only be achieved from a rising gold price.

About the Author

Helen Miller

Helen Miller is a freelance writer at CouponKirin. She covers personal finance topics in a syndicated column that appears in Financial Planning Magazine. Her work has been featured by Market Watch, Digital Journal, Chicago Tribune, USA Today, and Yahoo Finance. Helen has a bachelor’s degree in finance from the University of California, Los Angeles.