The biggest commodity shock since the 1970s raises the spectre of stagflation, says World Bank
Intensifying fears that the global economy is heading for a rerun of the high inflation and weak growth of the 1970s, the World Bank has warned that the war in Ukraine will translate into expensive food and energy for the next three years.
There was a risk that enduring high commodity costs lasting until the end of 2024 would lead to stagflation – the strong cost of living pressures combined with sluggish activity – the Washington-based development organization said in a gloomy analysis.
The Bank’s latest commodity markets outlook said that the world had seen the biggest jump in food and fertilizer prices since 2008 and the biggest increase in energy prices since the 1973 oil crisis over the past two years. Although likely to retreat from their current levels, the costs of food and energy were forecast to be above the average for the past five years at the end of 2024.
The Bank is forecasting a 50% rise in energy prices this year, as a result of trade and production disruptions caused by the Russian invasion of Ukraine. This year it expects the price of Brent crude oil to average $100 a barrel, an increase of more than 40% compared with 2021 and its highest level since 2013.
In 2023, prices are estimated to drop back to $92. However, these prices will remain well above the five-year average of $60 a barrel.
European coal prices are expected to be 80% higher, while gas prices for 2022 are expected to be twice as high as they were last year. Putting pressure on developing economies that rely on wheat imports from Russia and Ukraine, the Bank expects wheat prices to increase more than 40% this year.
Indermit Gill, a World Bank vice-president, said:
“Overall, this amounts to the largest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel, and fertilizers.”
“These developments have started to raise the spectre of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy.”
