Since the end of last summer, inflation has rebounded across our own economy as well as the rest of the euro area, the UK and the US.

But this week, as the war in Ukraine became more brutal and the impact of sanctions against Russia rippled out, it became clearer that what we've experienced up to now may only have been a relatively benign adjustment to the post-Covid world.

What we’re seeing now amounts to a full force price shock.

The Russian invasion of Ukraine could rank alongside the oil shocks of the 1970s in its implications for how our economies function.

Eurostat published its estimate for euro area inflation in February this week: 5.8%. The figure for Ireland was 5.7%.

It was another record for the single currency area. And it was largely relegated to the inside pages. Inflation really is an abstract concept compared to the terrible human suffering of war.

It matters little in any case because much more dramatic price increases look likely to be coming down the tracks.

One hint was the staggering 32% annual increase in energy inflation recorded by Eurostat in February.

And that hasn’t improved in the past week.

In fact, the price of gas on one of Europe’s main markets, the Dutch Title Transfer Facility, or Dutch TTF Gas Futures, has doubled in price since the invasion.

The price on one of the benchmark crude oil indices, Brent Crude, went up from just below $100 a barrel on the eve of the invasion to almost $120 a barrel towards the end of this week before settling back to just over the $110 a barrel mark. It was below $80 a barrel just six months ago.

Oil and gas have been joined by higher prices for coal and aluminium; Russia is a major supplier of both commodities. Both Ukraine and Russia together supply around a third of the world’s wheat. The price of this vital commodity is on the way up too.

The longer this war goes on, the longer the price of these commodities remain elevated, the bigger the likelihood that higher prices will be passed on to consumers.

So, just how could this translate into inflation?

The Central Bank performed a stress test in their last Quarterly Bulletin (Quarterly Bulletin Q1 2022 | Central Bank of Ireland) . It examined what would happen to inflation here if there was a 100% increase in energy costs, defined as oil, coal and gas. It found that it could add 2.7% to the rate of inflation here in the first year of the price shock, with a lower effect in subsequent years.

The Central Bank’s forecast for average inflation this year is 4.5% so that would imply an inflation rate of 7.2%.

We’ve still a ways to go yet but that hypothetical scenario is skirting close to the current reality.

The reliance of Europe on Russian commodities is an uncomfortable reality of the Ukraine crisis (see here for some of the details).

Moves to step away from this, like the suspension of the Nord Stream 2 gas pipeline project, will be painful in the short term. The same applies to oil and the refusal of terminals in the UK and elsewhere to accept Russian registered tankers.

Supply shrinks and prices rise.

The International Energy Agency, of which Ireland is a member, took a step further on Thursday and suggested that no new gas supply contracts with Russia should be taken out after the current contracts expire.

The German Minister for Economic Affairs and Climate Protection, Robert Habeck, was quick out of the traps to oppose such a move (Germany gets 60% of its gas from Russia) telling journalists in Berlin that a ban on energy imports from Russia would threaten social cohesion in Germany. He suggested people save on energy instead.

Meanwhile, western companies in their droves have been severing or suspending their business links with Russia either directly as a result of sanctions or 'self-sanctioning’ in the wake of widespread opposition to Russia’s military campaign.

This will impact these companies to varying degrees and reinforce the isolation Russia is already experiencing following its exclusion from much of the world’s financial system.

This is significant but energy and commodities define Russia’s economic relationship with the world, particularly with Europe. Unfriendly fire has already stoked inflation.

US President Joe Biden said "nothing is off the table" when asked if banning Russian energy imports was being considered. The same calculation is more difficult the closer your economy is to Russia.

But the question is if the conduct of Russia’s war in Ukraine tilts that calculation towards considering that option, even with its implications for much higher inflation and even rationing of gas.