In a new report, the World Bank has said that the surge in food and energy prices and the volatility of commodity prices have contributed to push up inflation.
According to the development finance institute, the covid-19 pandemic and the war in Ukraine has only helped to exacerbate the situation.
In the report titled ‘Macroeconomic Impact of Food and Energy Insecurity’, the Bank noted that, worryingly, the up-and-down swings in commodity prices will likely pose economic challenges in coming years.
The global lender noted that such swings in commodity prices can weigh on long-term economic growth, especially for commodity exporters.
“What’s more, volatility in commodity prices also appears to increase the volatility of domestic inflation over the medium term. This can occur, for example, as greater volatility in the price of imported goods passes through to domestic prices and thereby result in more volatile consumer inflation.
“The challenges from heightened commodity price volatility come on top of the problems caused by the surge in price levels. World food commodity prices rose nearly 40 percent in the two years just before Russia’s invasion of Ukraine, and the war propelled prices even higher. Wheat prices jumped 38 percent in March 2022 from a month earlier. Energy prices rose sharply, with natural gas prices in Europe tripling. High energy prices also fed into record prices of commonly used fertilizers for food production,” the Bank said.
To address this, the Bank says policymakers must remain vigilant.
“First and foremost, addressing inflation is a key concern, which means that monetary policy must remain focused on bringing inflation down. At the same time, fiscal policy should aim for gradual and steady tightening, and thus reduce the pressure on monetary policy to combat high inflation, while supporting the most vulnerable. As such, costly broad-based policies to mitigate the impact of higher commodity prices, including measures like price subsidies to limit the pass-through to domestic prices, need to be unwound and replaced by targeted measures to support vulnerable households,” it said.
