World Bank sees ‘significant’ inflation risk from high energy prices

A participant stands near a World Bank logo during the 2018 annual meeting of the International Monetary Fund – World Bank in Nusa Dua, Bali, Indonesia, October 12, 2018. REUTERS / Johannes P. Christo

  • Crude oil prices will average $ 70 / barrel in 2021
  • Energy prices are expected to decline in the second half of 2022
  • Other price peaks possible in the short term

WASHINGTON, Oct.21 (Reuters) – Energy prices are expected to rise in 2022 after jumping more than 80% in 2021, fueling significant near-term risks to global inflation in many developing countries, said the World Bank in its latest Commodity Markets Outlook on Thursday.

The Multilateral Development Bank said energy prices are expected to start falling in the second half of 2022 as supply constraints ease, with non-energy prices such as agriculture and metals also set to fall afterwards. strong gains in 2021.

“Soaring energy prices pose significant near-term risks to global inflation and, if sustained, could also weigh on growth in energy-importing countries,” said Ayhan Kose, economist in Head and Director of the World Bank’s Prospects Group, which produces the Outlook Report.

“The sharp rise in commodity prices is proving more pronounced than expected. Recent price volatility could complicate policy choices as countries recover from last year’s global recession.”

The bank noted that prices for some commodities had reached or exceeded levels in 2021 not seen since peaking a decade earlier.

Prices for natural gas and coal, for example, have reached record highs amid supply constraints and rebounding demand for electricity, although they are expected to decline in 2022 as demand declines and as supply improves, the bank said.

He warned that further price spikes could occur in the near term given current low stocks and persistent supply bottlenecks. Other risk factors included extreme weather events, the uneven recovery of COVID-19 and the threat of new epidemics, as well as disruptions to the supply chain and environmental policies.

Rising food prices have also led to higher food price inflation and raised questions about food security in several developing countries, he said.

The bank forecast crude oil prices to hit $ 74 / bbl in 2022, supported by stronger demand from a projection of $ 70 / bbl in 2021, before falling to $ 65 / bbl in 2023.

The use of crude oil as a substitute for natural gas posed a major upside risk to the demand outlook, although rising energy prices could begin to weigh on global growth.

The bank predicts a 5% drop in metal prices in 2022 after rising 48% in 2021. It said farm prices are expected to decline slightly next year after jumping 22% this year.

He warned that changing weather patterns due to climate change also posed an increasing risk to energy markets, potentially affecting both demand and supply.

He said countries could benefit by speeding up the installation of renewable energy sources and reducing their dependence on fossil fuels.

Reporting by Andrea Shalal; edited by Diane Craft

Our Standards: Thomson Reuters Trust Principles.

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Natalee Broderick

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