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World bank sees significant inflation risk

Energy prices are expected to inch up in 2022. The World Bank said in its latest Commodity Markets Outlook that this is after surging more than 80% in 2021, fueling significant near-term risks to global inflation in many developing countries. The multilateral development bank said that the energy prices should start to decline in the second half of 2022. This is because of the supply constraints ease, with non-energy prices such as agriculture and metals also expected to ease after strong gains in 2021.

Ayhan Kose, chief economist and director of the World Bank‘s Prospects Group said that the surge in energy prices poses significant near-term risks to global inflation and, if sustained, could also weigh on growth in energy-importing countries. The sharp rebound in commodity prices is turning out to be more pronounced. Recent volatility in prices may complicate policy choices. The International Monetary Fund, in a separate blog said that it expected energy prices to revert to more normal levels.

But this warned that uncertainty remained high and small demand shocks could trigger fresh price spikes. The World Bank noted that some commodity prices rose to or exceeded levels in 2021. Natural gas and coal prices, reached record highs. They are expected to decline in 2022 as demand eases and supply improves, as per the bank. Further price spikes could occur in the near-term given current low inventories and persistent supply bottlenecks. Extreme weather events, the uneven pandemic recovery and the threat of more outbreaks, along with supply-chain disruptions and environmental policies are among the main things.

It also stated that the higher food prices were also driving up food-price inflation. The bank projected crude oil prices would reach $74/bbl in 2022. The use of crude oil as a substitute for natural gas presented a major upside risk to the demand outlook. The bank forecast a 5% drop in metals prices in 2022. It said that the agricultural prices were expected to decline modestly next year. It warned that changing weather patterns due to climate change also posed a growing risk. Also, the countries could benefit by accelerating installation of renewable energy sources.

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