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The Russian war in Ukraine has pushed up global food and energy costs, and costs are expected to remain high for the next three years, the World Bank said in a dour economic outlook this week.
The Washington-based institution said there is a risk that high commodity costs, which will last into late 2024, could lead to stagflation, the 1970s-style economic phenomenon characterized by persistently high inflation and high unemployment.
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In the past two years, the world has seen the biggest rise in energy prices since the 1973 oil crisis and the biggest rise in food and fertilizer prices since 2008, according to the World Bank’s latest outlook on commodity markets. Although food and energy costs could cool slightly from current levels, they are expected to remain above the average for the past five years through at least 2024.
Pedestrians pass signage for Spring meetings of the International Monetary Fund (IMF) and the World Bank in front of the IMF headquarters in Washington April 3, 2021. (Samuel Corum/Bloomberg via Getty Images/Getty Images)
As a result of the disruptions from the Ukraine war, the World Bank is now forecasting a 50% rise in energy prices this year, with the price of Brent crude, the global benchmark, expected to average $100 a barrel in 2022. That would mark the highest level since 2013. Although prices are expected to fall slightly to $92 a barrel in 2023, that’s well above the five-year average of $60 a barrel.
“This is the biggest commodity shock we have seen since the 1970s. As then, the shock will be compounded by an increase in restrictions on trade in food, fuel and fertilizers,” said Indermit Gill, vice president of the World Bank. “These developments have begun to raise the specter of stagflation.”
Commodity prices were already rising before the invasion began on February 24, and the war has exacerbated already sky-high inflation. In the US, the Department of Labor reported earlier this month that the consumer price index rose 8.5% in March from the same period last year, the fastest pace since December 1981.
Gasoline prices on April 11, 2022 at several Washington, DC gas stations are around $4 per gallon for the cheapest kind. (Chip Somodevilla/Getty Images/Getty Images)
The World Bank has already lowered its forecast for global growth in 2022 to 3.2% – a sharp drop from January’s forecast of 4.1%. The drop is due to a cut in the outlook for Europe and Central Asia, which includes both Russia and Ukraine. For comparison: the global economy grew by 5.7% in 2021.
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World Bank President David Malpass told reporters the war between Russia and Ukraine — the worst conflict Europe has seen in decades — has exacerbated financial pressures from the COVID-19 pandemic, as well as rising costs of living, and said it needed to do it immediately Help.
“I’m very worried about the developing world,” Malpass said. “They are faced with sudden hikes in energy, fertilizer and food prices and the likelihood of interest rate hikes. Every one of them hits her hard.”