An ominous picture of inflation is outlined in a new World Bank Commodity Markets Outlook report warning that the rise in food and energy prices due to the war in Ukraine could last for several years!
Prolonged inflation is knocking at our doors!
International food and energy prices are expected to continue to rise throughout the year, increasing inflationary pressure in the global market. Overall, commodity prices will remain well above their average over the past five years. However, the shock of the war in the broader commodity sector has caused changes in the patterns of world trade, production and consumption in such a way that prices will be supported by historically high level until at least the end of 2024.
According to the report, the pressure on commodity prices, combined with further increases in trade and transport costs due to the war, means we have entered a period of prolonged high inflationwhich significantly increases the risk of its stagnation.
“This is the biggest shock we have experienced in commodity markets since the 1970s,” said World Bank Vice President Intermitt Gill, noting that the shock was exacerbated by the domino effect of restrictions on trade in food, fuels and fertilizers. It is no coincidence that these events “have begun to add to the spectrum of stagflation,” he said, warning of the need to take steps to boost economic growth and avoid steps that could jeopardize the global economy.
It is assumed that energy prices will jump by more than 50% during the year as a whole, i.е. will almost double compared to 2021. Experts cautiously state that they are expected to start declining from 2023, by 12.3% in 2024, but the likelihood of this is not so high.
A combination of war, trade and production problems will keep Brent above $100 a barrel throughout 2022. At these levels, we are talking about the highest price level since 2013. An increase of more than 40% is expected compared to 2021, when the average oil price reached $70.40.
Brent crude is expected to fall to around $92/bbl in 2023 but remain well above the previous five-year average of $60/bbl. In international markets today, Brent is rising to $104.40 per barrel, falling from a record $127.98 at the end of March, but remaining well above the $100 mark.
European gas prices are expected to double within a year, while coal prices are expected to rise by 80%. Both are at new all-time highs. And this is if the European Union does not finally ban the purchase of Russian oil. (In this case, the experts give up, editorial note).
With the exception of energy, prices in other commodity sectors, such as agricultural products and metals, will rise by about 20% in 2022 and decline moderately in the coming years*. Metal prices will rise by 16% in 2022 and then fall slightly in 2023, but will still remain at a “thorny” level.
Due to the war in Ukraine and sanctions against the Russian Federation, food prices are predicted to rise by 22.9% this year and then fall by 10.4% next*. Although it is noted that food prices already rose sharply last year by 31%creating a suffocating environment for households, especially in less prosperous countries.
In particular, for some agricultural products such as cereals and cooking oils, given the role Russia and Ukraine play in their global production, growth will reach its highest level since 2008. Grain prices will rise by at least 40% throughout the year, remaining at historically high levels. This will put strong pressure on emerging economies, which are highly dependent on Russian and Ukrainian grains.
The bank “sees” the price of winter grains to rise to $380 a metric ton this year and fall slightly, to about $370, in 2023 and 2024. The average price was $315 last year and $232 per metric ton in 2020.
War, like its evolution, will play a decisive role. The consequences of the conflict are already visible, but in the event of a protracted war, with additional sanctions against Russia, the situation will become even more unfavorable, which will push prices up even more.
Commenting on the report, World Bank economist John Buffs spoke of an explosive social mix that increases the risk of a food crisis. “A sharp rise in energy and fertilizer prices will lead to a reduction in food production, especially in developing countries,” he said, noting that the reduction in production and the drop in quality will affect food availability, income levels and, ultimately, the quality of life of citizens. especially the poorest countries.
Farewell… green economy
The report sounds like a wake-up call for the economy’s plans to transition to a green economy. Not only because the war is forcing many countries to use polluting energy sources such as lignite to meet their needs. But also because rising commodity prices threaten to derail and delay the transition to cleaner energy sources.
The surge in metal prices is steadily increasing the cost of renewable energy projects that require metals such as aluminum and nickel to complete. The same applies to turning on the electric drive. An example is the nickel market, where Russia accounts for 6% of global production, while Russia accounts for 20% of the high-quality nickel market needed for electric vehicle batteries.
Characteristically, many countries have announced an increase in fossil fuel production and a freeze on plans related to the process of their demilitarization.
* If the war in Ukraine ends and sanctions against the Russian Federation are lifted. (Editor’s note.) Of which we have certain doubts.