World Bank cautions on inflation dangers in developing countries amid rising conflicts
Published on: October 31, 2023.
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World Bank Warns of Inflation Risks in Developing Countries
The World Bank recently issued a warning about the potential for inflation in developing countries due to escalating conflicts. It emphasized the need for policy changes to address food security risks. The bank advised against trade restrictions and price controls and instead recommended measures such as improved social safety nets, diversified food sources, efficient food production and trade, and a shift towards renewable energy to mitigate the impact of oil-price shocks.
One example cited by the World Bank is India’s ban on non-basmati rice exports. Influenced by concerns related to potential El Niño effects and the 2007/08 food price crisis, this ban could result in high rice prices in 2024 if it continues. Additionally, India’s reduction in fertilizer subsidies may affect global fertilizer demand.
The World Bank’s report also included projections for oil prices, which are expected to average $90 per barrel this quarter and decrease to $81 next year as global economic growth slows down. Commodity prices are forecasted to decline by 4.1% next year, with agricultural commodities and base metals also expected to see decreases. However, these projections may change if conflicts escalate further.
The bank outlined three risk scenarios that reflect potential disruptions in the global oil supply, similar to those experienced during the Libyan civil war, Iraq war, and Arab oil embargo. These scenarios could result in significant price surges.
To date, conflicts have had a relatively minor impact on global commodity markets, with oil prices only increasing by about 6% since the start of the conflict and minor shifts observed in other commodity prices. However, an escalation in conflicts could significantly worsen this outlook.
The World Bank also highlighted the redirection of Russian exports from EU and G7 countries to China, India, and Türkiye due to spikes in Urals prices. This has made the late 2022 price cap on Russian exports increasingly unenforceable. Policymakers are advised to remain vigilant as commodities can signal potential risks, especially in the event of a broader Middle East conflict that could prompt investors to seek safe-haven assets.
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