① The World Bank's chief economist said that the world is in a vulnerable moment. A major energy shock may completely destroy the anti-inflation results of the past two years; ② Under more serious conflicts, oil prices exceeded 100 US dollars per barrel, thus increasing the global inflation rate by nearly 1 percentage point.
Financial Services Association, April 26 (Editor Niu Zhanlin) The World Bank said that global commodity prices will weaken in the next few years, but they will remain far higher than before the COVID-19 pandemic. This will make it more difficult for central banks to reduce the inflation rate, so they will have to delay interest rate cuts.
Indermit Gill, chief economist and senior vice president of the World Bank, said on Thursday: “Global inflation has yet to be overcome, and the current commodity bullish market is a key factor hindering lower inflation, which means that interest rates for this year and next may still be higher than current expectations.”
Gill added that the world is at a vulnerable moment, and a major energy shock could wipe out the anti-inflation gains of the past two years.
According to the agency's report, commodity prices plummeted by nearly 40% between June 2022 and June 2023, and the prices of oil, gas, and wheat all fell sharply. This drove the global inflation rate down by more than 2 percentage points, but commodity prices have remained essentially unchanged since then.
Large bull market
However, since this year, the situation has changed dramatically. On Friday, Luntong broke through the $10,000 per ton mark for the first time since 2022. Compared with the beginning of the year, it has now risen by about 17%.
The rise in gold and crude oil has received more attention from the market. So far this year, international gold prices have risen by nearly 14%, and reached a record high at the beginning of this month. As the risk of an all-out war between Israel and Iran decreases, the safe-haven appeal of gold has been reduced to a certain extent, but the conflict may escalate again at any time.
Brent crude oil surged to $91 per barrel in early April, nearly $34 above the 2015-19 average. The international oil benchmark is currently trading at around $88 per barrel.
Despite sluggish economic growth, commodity prices continued to rise, mainly due to heightened geopolitical risks, tight supply of many industrial commodities, and clean energy technology boosting demand for some industrial metals.
The World Bank said that the main risk of rising prices is the escalation of conflict in the Middle East region, which may increase global inflation and further delay monetary easing policies. “A range of adverse outcomes are still possible, involving a further escalation of conflict involving one or more major oil producers, which could result in restrictions on extraction and exports in the region, rapidly reducing global oil supply.”
The World Bank's Deputy Chief Economist Ayhan Kose claims that the major problem is that commodity prices remain high while global economic growth is slowing down. This differentiation marks the beginning of a “new era.”
inflationary pressure
The World Bank predicts that mild supply disruptions may raise the average price of Brent crude oil to 92 US dollars per barrel this year, while under more serious conflicts, oil prices will exceed 100 US dollars per barrel, thus increasing the global inflation rate by nearly 1 percentage point.
Additionally, other upside risks include a reduction in US energy supply and the possibility that shale oil producers will not be able to meet production targets, as the industry currently tends to distribute increased profits to shareholders rather than reinvest them in extraction.
ECB President Lagarde said in an interview last week that the ECB must pay close attention to commodity price trends, especially energy and food prices, as they will have a direct and rapid impact on inflation.
The ECB has hinted that it may start lowering the benchmark interest rate in June, while the Federal Reserve said it may cut interest rates later this year after recent data showed strong activity in the US.
The World Bank predicts that the commodity price index compiled by the bank is expected to drop by 3% and 4% this year and next, respectively. This is equivalent to about 38% higher than the average for the 2015-19 period. Inflation rates in many economies will still be above target levels this year and next.