War in Ukraine: World Bank says there will be inflation until 2024

By Maureen Songne
Posted on Friday, 29 April 2022 17:39

A Tunisian supermarket that is already experiencing shortages, 8 April 2022. © Chedly Ben Ibrahim/Bloomberg/Getty
A Tunisian supermarket that is already experiencing shortages, 8 April 2022. © Chedly Ben Ibrahim/Bloomberg/Getty

According to the World Bank’s projections, commodity prices will increase significantly over the next two years due to the war in Ukraine. The impact of this may be felt for even longer if the conflict continues.

In its latest ‘Commodity Market Outlook’ report, which was published on 26 April, the World Bank is not very optimistic. According to the Bretton Woods institution, “the war in Ukraine, by causing a major shock to these markets, has altered global trade, production and consumption patterns such that prices will remain at historically high levels until the end of 2024”. This inflationary shock will last on both the energy and food fronts, with peaks not seen since the 1973 oil crisis, the Bank says.

“As was the case then, the shock is compounded by renewed restrictions on trade in food, fuel and fertiliser,” says Indermit Gill, the World Bank’s vice president for equitable growth, finance and institutions. This has “begun to raise the spectre of stagflation”, he adds. As such, Gill has called on “policymakers to seize every opportunity to encourage economic growth at home and to avoid actions that could damage the global economy”.

Not since 2008 have the prices of food – of which Russia and Ukraine are major producers – and fertilisers, which are made from natural gas, risen so sharply. Overall, the World Bank estimates that non-energy commodity prices, including agricultural commodities and metals, are expected to rise by almost 20% in 2022 and then stabilise in the following years. Food prices are expected to remain well above the average of the last five years.

Similarly, the institution forecasts that energy prices will rise by more than 50% in 2022 before easing in 2023 and 2024. The price of crude oil (Brent) should reach an average of $100 a barrel in 2022 – its highest level since 2013 – and increase by more than 40% compared to 2021. Prices are expected to moderate to $92 in 2023, well above the five-year average of $60 per barrel.

Worst-case scenario

According to John Baffes, a senior economist at the World Bank’s Prospects Group, “the sharp rise in the price of inputs, such as energy and fertilisers, could lead to a reduction in food production, particularly in developing economies. Reduced input use will affect food production and quality, which in turn will affect food availability, rural incomes and the poor’s livelihoods”.

Even so, these projections are not fixed. In the event of a prolonged war or further sanctions against Russia, prices could become even higher and more volatile, the Bank warns.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options