The World Bank is forecasting further disruptions to global supplies of food and energy this year as a result of Russia’s war in Ukraine and says prices could remain elevated through 2024.
The bank’s latest Commodity Markets Outlook report says wheat prices could increase more than 40% this year and energy prices more than 50% — which would exacerbate global inequities, according to World Bank President David Malpass.
“It’s hitting people in the poorest countries hardest, but it also goes along with the other crises that people were facing,” he said in an interview with Marketplace’s David Brancaccio.
And rising commodity prices increase the risk of stagflation, or a confluence of inflation and slow growth — although likely not to the extent of the problem seen in the 1970s, according to Malpass.
“In the 1970s, the world had been on the gold standard up through 1971 and then suddenly fell off the gold standard, so there was a giant devaluation of the dollar. That’s not present now. And so I think there are some scenarios where production will go up, and that will help the inflation rate come down more quickly than what occurred in the 1970s and 1980s,” he said.
The following is an edited transcript of the interview.
David Brancaccio: We’ve been covering this ad hoc — wheat, oil, natural gas, metals being affected by Russia’s war on Ukraine. But you’ve been gathering more rigorous data here. What’s the outlook for these key things?
David Malpass: [There have] been big increases, some over 30% year over year. And so it’s hitting people in the poorest countries hardest, but it also goes along with the other crises that people were facing. It adds up to a very difficult situation.
Brancaccio: And it’s not particular to first and second quarter of 2022 — this is something likely to persist as the year wears on.
Malpass: It depends a lot on the production around the world. There’s a sudden cut-off from Russia of natural gas and of other supplies. The wheat going out of the Black Sea has been a big problem for countries. And so the big variable in my mind is how much new production will come on stream in the major economies — so the U.S., Canada, China, India.
Brancaccio: Now, I didn’t need the World Bank to tell me that energy prices are going up, but, by your calculation, the last two years has seen the biggest jump since 1973. Are we going to have 1970s-style stagflation around the world? What do we have here?
Malpass: There could be, and that’s a risk. “Stagflation” means the combination of slow growth and fast inflation. In the 1970s, the world had been on the gold standard up through 1971 and then suddenly fell off the gold standard, so there was a giant devaluation of the dollar. That’s not present now. And so I think there are some scenarios where production will go up, and that will help the inflation rate come down more quickly than what occurred in the 1970s and 1980s.
Brancaccio: There’s been some reporting on a document out of Russia’s economy ministry suggesting that, with sanctions, Russia’s economy could contract 9%, 10%, maybe 12% this year. But what about Ukraine’s economy? Is there any way to get a sense of the economic damage there?
Malpass: Both we and the [International Monetary Fund] do forecasts on single countries, and so we recently put out forecasts that it could be a 45% reduction in Ukraine. The IMF has a slightly smaller reduction. But the reality of it is Ukraine has been invaded and attacked and bombed, and the crops are having trouble getting to market. So this is a giant reduction in the amount of sales, of production.