High commodity prices could keep inflation elevated, World Bank warns
Sustained high levels of energy and commodity prices could drive global inflation upwards, the World Bank has warned.
In a report issued today, the US-based institution said the decline in commodity prices over the last two years had likely come to an end at the hands of heightened geopolitical tensions and demand for energy transition metals.
Indermit Gill, the World Bank’s chief economist, said: “Global inflation remains undefeated, a key force for disinflation – falling commodity prices – has essentially hit a wall.
“That means interest rates could remain higher than currently expected this year and next and the world is at a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years.”
Between 2022 and 2023, global commodity prices fell nearly 40 per cent, which the bank said drove inflation down two percentage points.
Oil prices have already been steadily rising as the Israel-Palestine conflict continues to rage on, now possibly expanding to include major oil supplier Iran.
Today, brent crude prices have hit $87.74 (£70.3), up two per cent in the last month.
The Bank’s report lays out the scenario of a conflict-related supply disruption, akin to that felt by the energy markets following Russia’s invasion of Ukraine in 2022, spiking the average brent price to $92 (£73.80) per barrel before 2025.
Additionally, the institution predicts that commodity prices will fall just three per cent in 2024 and four per cent in 2025.
The Bank’s report feeds into concerns around supply shortages for certain key energy transition materials.
Prices for copper, needed for the upgrading of electricity grids as well as electric vehicles and building, sit at $9,654 (£7,732) per tonne today, a 15 per cent increase on levels seen at the outset of 2024.