Rising energy and food prices are accumulating further upward pressure on the already uncontrolled inflation worldwide, making the task of central banks to tackle inflation more complex compared to just two months ago. The Fed and other central banks expect to raise key interest rates several times this year alone. And that – along with high energy and food prices – is set to slow economic growth in 2022, which in turn could hamper global oil demand, analysts and major international organizations warn.
Energy values ​​”Higher for a longer period of time”. The biggest energy shock since the 1970s is expected to keep oil and other energy prices high for years as the Russian invasion of Ukraine changes the flow of energy trade and consumption and production, the World Bank said in a report. on commodity markets prospects on Tuesday. “While prices are generally expected to peak in 2022, they will remain much higher than previously predicted. “Prospects for commodity markets depend to a large extent on the duration of the war in Ukraine and the severity of the disturbances in the flow of goods, with the main risk that commodity prices will be higher for a longer period of time,” the bank said. After the Russian invasion of Ukraine, energy prices in March 2022 were double those of March 2021, with the largest price increases for gas and coal. The price of Brent crude oil is expected to average $ 100 per barrel this year, an increase of 42 percent from 2021 and the highest annual level since 2013. Brent prices are expected to hold at $ 92 a barrel in 2023, but remain well above the five-year average of $ 60 a barrel. Food prices skyrocket All-time highs Since the start of the war in Ukraine, prices have risen for basic foodstuffs – major producers in Russia and Ukraine – and fertilizers based on natural gas as an input production, were the largest since 2008, says the bank. “Overall, this equates to the biggest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is exacerbated by rising restrictions on the food, fuel and fertilizer trade,” said Indermit Gill, vice president of World Bank for Fair Development, Finance and Institutions. The FAO Food Price Index jumped to a record high in March, averaging 159.3 points, up 12.6% from February, when it had already reached its highest level since its inception in 1990, the Food and Drug Administration said. and the United Nations (FAO) earlier this month.
“Higher commodity prices are exacerbating already rising inflationary pressures around the world,” said Ayhan Kose, Director of the World Bank’s Outlook Group at the Commodity Markets Outlook. Judging by the open interest in the six major futures contracts, the market expects food prices to continue to soar.
“The risk of a global food crisis triggered by weather concerns and the risk of a sharp drop in this year’s production in Ukraine helped support the cereals and soybean sector” in the last reporting week until April 19, according to Commitment reports. of Traders listed on stock exchanges, said this week Ole Hansen, Head of Commodity Strategy at Saxo Bank. The net long position in the futures contracts reached a high of ten years. “The upward belief in higher prices can be seen in the long / short ratio with readings of 43 longs to 1 short in soy and 33 to 1 in corn, highlighting an area that has literally no short positions left,” Hansen said. Increasing inflationary pressure complicates the reaction Rising energy and food prices have been pushing up consumer prices, and policymakers have been facing increasing challenges to curb inflation, which has not been “temporary” – as economists insisted last year – for months. “War also leads to more costly forms of trade that could lead to long-term inflation. “It is expected to cause a major diversion of trade in the energy sector,” said the World Bank. “The rapid rise in energy and food prices will boost growth and substantially increase inflation, further complicating the policy decisions facing central banks,” the bank warns. The International Monetary Fund (IMF) also warned last week that the war in Ukraine was hampering global economic recovery as “the economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and increase inflation.”
Global growth is now expected to slow from around 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower in 2022 and 2023 than projected in January, reports the IMF. According to the IMF, inflation is expected to remain high for a longer period of time than in the previous forecast, “driven by rising commodity prices caused by the war and growing price pressures.”
“Rising inflation will complicate the compromises facing central banks between reducing price pressures and ensuring growth,” the fund said. In the United States, the Fed will move more aggressively to reduce inflation, considering raising interest rates by 50 basis points as early as next month, Fed Chairman Jerome Powell said last week at an IMF panel chaired by Sarah. CNBC’s Eisen. . The Fed will seek to rebalance supply and demand in order to reduce inflation without causing a recession, Powell said. “I do not think you will hear anyone at the Fed say this is going to be simple or easy. It will be very challenging. ” By Tsvetana Paraskova for Oilprice.com More top readings from Oilprice.com: