A report released by the World Bank warned that due to factors such as the Russian-Ukrainian conflict, global prices for energy, food and other commodities may remain "historically high" until the end of 2024.
According to the World Bank's Commodity Market Outlook report released on April 26, energy prices will rise by 50.5% in 2022 and then fall back in 2023 and 2024; non-energy prices, including agricultural products and metals, are expected to rise by 19.2% in 2022, and price pressure will gradually ease in the following years. Food prices will rise by 22.9 per cent this year, with wheat prices rising 42.7 per cent, reaching the highest level in a normal year.
Overall, global commodity prices will remain well above the last five-year average. According to the World Bank, the world is experiencing the largest wave of commodity price shocks. Energy prices have seen their biggest increase since the 1973 oil crisis over the past two years, while food prices have seen their biggest increase since 2008.
Indmit Gill, world bank vice president for equitable growth, finance and institutional affairs, said the surge in restrictions on trade in food, fuel and fertilizers had exacerbated the shock to commodity prices, and concerns about stagflation were rising.
Recently, a reporter from the Beijing News interviewed John Baffes, a senior economist at the World Bank's Forecasting Bureau. Bafs pointed out that on the basis of the sharp rise in global prices of commodities such as energy in the early stage, the Russian-Ukrainian conflict will lead to prices being high for a long time. In addition, if the conflict continues to intensify and sanctions against Russia on all sides increase, global energy and food prices will continue to rise.
On May 6, 2022, local time, Kiev, Ukraine, during the Russian-Ukrainian conflict, Ukraine was short of fuel, and vehicles lined up in front of gas stations. Figure/IC photo
Conversation with John Bafs, Senior Economist at the World Bank's Forecasting Bureau
Beijing News: In recent years, global energy and food prices have soared. According to the latest World Bank report, global energy prices will rise by 50.5% and food prices by 22.9% this year. Is it mainly affected by the Russian-Ukrainian conflict? Are there other influencing factors?
John Baves: Over the past two years, global energy prices have soared, especially for natural gas and coal. Although there has been a partial increase since the outbreak of the Russian-Ukrainian conflict, in fact, since the middle of 2020, energy prices and the prices of fertilizers, grains, edible oil and other commodities have risen sharply.
On the whole, the rise in global energy and food prices is due to the strong economic recovery after the lifting of the epidemic lockdown measures on the one hand, and the impact of factors such as supply chain obstruction on the other hand.
Beijing News: How does the Russian-Ukrainian conflict affect global energy and food prices? With the conflict still ongoing, will energy and food prices continue to rise for some time to come?
John Baves: The Russian-Ukrainian conflict has had a very serious impact on commodity markets, changing global trade, production and consumption patterns, and will cause prices to remain high for a long time.
Simply put, Russia and Ukraine are major exporters of many commodities, but the conflict has disrupted the production and trade of these commodities, leading to higher prices. For example, the conflict has led to the suspension of almost all grain exports in Ukraine, which accounts for about 10% of global wheat exports, as it affects a new round of food cultivation. In addition, Russia's energy exports have been restricted due to import bans imposed by some countries, resulting in soaring energy prices.
If the conflict continues to intensify, accompanied by increased sanctions on all sides of Russia, we may see energy and food prices continue to climb. It is worth noting that rising energy prices will also increase the cost of production of other commodities, such as fertilizers and metals, resulting in a consequent increase in the prices of these commodities.
On April 9, 2022, local time, Oberhausen, Germany, affected by the Russian-Ukrainian conflict, Germany's recent food prices rose. Figure/IC photo
Beijing News: Which countries or regions have been most affected by rising energy and food prices? Are rich and poor countries not being hit differently?
John Buffs: While rising energy and food prices will have an impact on both high- and low-income countries, there is no doubt that low-income countries– especially those that rely on imports for food or energy– will be more affected.
First, in poorer countries, a large share of people's household income is spent on food and energy, and in some cases this proportion exceeds 50 per cent. Second, low-income countries have far fewer financial resources to subsidize their populations, for example through cash or other targeted subsidies.
Beijing News: The World Bank reports that price shocks on commodities such as energy and food will continue until the end of 2024. What actions should countries take to reduce their impact on their own? What action will the World Bank take?
John Barffs: In the short term, urgent measures such as food distribution or subsidies may need to be taken. However, policymakers must ensure that these measures, which could affect markets, do not last long. In the long run, direct income support, investment in production and sales are more appropriate policy initiatives. Countries need to work to boost their own economic growth and avoid measures that could hurt the global economy.
From the World Bank's perspective, we are doing everything we can to help in this crisis. We have raised more than $3 billion in funding through grants, guarantees, and parallel financing. We are also exploring other innovative financing options to support countries hosting Ukrainian refugees.
On May 5, 2022, local time, in Istanbul, Turkey, people shopped in markets, and the country's inflation has reached its highest level in 20 years. Figure/IC photo
Beijing News: What impact will the continuous soaring prices of grain and food have on the world economy? What are the implications for ordinary people?
John Baves: As we said in the report, some countries have seen phenomena such as spikes in food inflation. For example, in regions such as sub-Saharan Africa and Latin America, inflation has reached nearly 14% and 12%, respectively, over the past three months. Inflation in the United States has also reached its highest level in more than 40 years, and European inflation has reached an all-time high of 7.5%.
High inflation will expose households around the world to a crisis of rising costs of living and more people will fall into food insecurity. And poor families will be hurt the most.
Beijing News: In the long run, what impact has this crisis had on globalization?
John Baves: Both the COVID-19 pandemic and the Russian-Ukrainian military conflict have shown that supply chain disruptions can have a significant impact on the global economy. As we highlighted in the April 2020 edition of our Commodity Market Outlook, we will see more backflows, such as businesses relying more on domestic supply chains than international ones. We will also see countries increase emergency inventories of energy and food commodities.
It is also important to note that soaring prices for food, energy, etc. could have a devastating impact on low-income countries, which would also exacerbate global poverty and lead to higher global inequality.
Beijing News reporter Xie Lian
Edited by Chen Jing, proofread by Wu Xingfa