Global commodity prices have stabilized after a sharp decline last year, complicating efforts by central banks to achieve inflation targets through reduced interest rates. According to the World Bank’s latest Commodity Markets Outlook, the stabilization of prices, following a near 40% drop between mid-2022 and mid-2023, could hinder further easing of global inflation rates. The World Bank reports that its commodity price index has shown little change since mid-2023 and forecasts only a slight decline of 3% in 2024 and 4% in 2025. Such modest decreases are unlikely to significantly impact inflation, which remains above target levels in many countries.
Indermit Gill, Chief Economist of the World Bank Group, noted that the halt in the decline of commodity prices is a critical factor in the persistent inflation challenges. He warned that this situation could necessitate sustained higher interest rates, particularly if geopolitical tensions worsen, potentially causing a major disruption in energy supplies. Current geopolitical issues have already affected oil prices, keeping them high despite overall sluggish global economic growth. Brent crude oil has been trading at around $91 per barrel, a figure significantly above its pre-pandemic levels. Further conflicts in the Middle East could lead to disruptions in oil supply, thus driving global inflation rates even higher.
Ayhan Kose, Deputy Chief Economist of the World Bank Group, highlighted the unusual disconnect between sluggish global growth and robust commodity prices, attributing the disparity primarily to ongoing geopolitical tensions. He advised central banks to remain vigilant regarding the inflationary risks posed by potential spikes in commodity prices amid these uncertainties. The report also forecasts that gold prices may reach record highs in 2024 driven by heightened demand during times of geopolitical and policy uncertainty. Additionally, any escalation in Middle East conflicts could increase the prices of natural gas, fertilizers, and food, further impacting global markets.
The influence of investments in green technologies on commodity prices was also discussed, with expectations for rising prices of metals such as copper and aluminum, which are crucial for the clean energy transition. Lastly, the World Bank’s report calls for the use of diverse analytical methods in commodity price forecasting to enhance the accuracy of predictions, reflecting the complex dynamics that influence global markets.
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