The price of basic commodities such as energy and food has risen sharply due to the war in Ukraine. According to the World Bank, they will remain high for several more years, probably until the end of 2024.
“The war has shocked and affected trade, production and consumption worldwide,” it said in a report on Tuesday. For example, the price of a number of food products such as wheat and sunflower oil, of which Russia and Ukraine are major producers on a global scale, rose at the fastest rate since 2008. Energy prices, on the other hand, experienced the strongest growth last year since the oil crisis of the 1970s.
“Ghost of Stagflation”
Globally, this is the biggest price shock since that period. This shock has been exacerbated by the additional trade restrictions that were introduced. The World Bank is concerned because the ‘spectre of stagflation’ is emerging, a phenomenon of high inflation combined with an economic shrinkage.
The World Bank expects energy prices to be 50 percent higher this year than last year, when they nearly doubled, before falling somewhat in 2023 and 2024. Russia is a major oil exporter, but Western countries don’t want Russian oil buy more because of the invasion of Ukraine. Together with the departure of oil companies such as Shell and BP from Russia, this means less investment in the country’s oil sector, making the country less able to pump oil and the available oil remains scarce.
Expensive oil
Researchers from the World Bank also estimate that OPEC oil cartel countries are having trouble pumping up more oil. Despite the explosive price increases, the alliance only slightly increases daily production. Reductions in excise duties or taxes on fuels do not help in the longer term either. Besides the fact that such a generic measure may help the poorest less than households with higher households, according to the World Bank they only threaten to boost the demand for petrol and diesel.
There is a chance that severe lockdowns in China will dampen the price increase for oil. Renewed measures against the coronavirus are thoroughly disrupting public life in major Chinese cities. Ultimately, this could also affect the industry and thus the demand for oil.
Agricultural products and metal
The prices of non-energy products, such as agricultural products and metal, are expected to rise by 20 percent in 2022, before falling slightly. “But that leaves them well above the price average of the last five years and, in the event of a long war or new sanctions against Russia, prices could go even higher or become more volatile than expected.”
The high prices also have a human cost, because it limits the fight against poverty. Earlier, the IMF lowered growth expectations for this year and next, as a result of the war in Ukraine and the impact of that war on energy and food prices.
IMF: “War in Ukraine and inflation threaten global recovery”
Are houses getting cheaper now? And is this still the time to invest in real estate? Experts answer (+)
Free unlimited access to Showbytes? Which can!
Log in or create an account and never miss a thing from the stars.