The World Bank has issued a warning that the days of energy and other commodities serving as a deflationary force may be coming to an end. Geopolitical tensions have put pressure on demands for oil, industrial metals, and other supplies, leading to a plateau in commodity prices over the past year, according to a report cited by the Financial Times.
The report highlighted a significant change from the 40% drop in global commodity prices between mid-2022 and mid-2023, which helped reduce global inflation by 2 percentage points that year. However, with conflicts escalating between Russia and Ukraine and in the Middle East, the demand for commodities like oil, gas, agriculture, and precious metals has increased.
The World Bank forecasts that prices may only fall by 3% in 2024 and 4% in 2025, leaving them 38% higher than pre-pandemic levels. This shift could impact inflation rates and potentially lead to higher interest rates than expected.
Amidst these developments, the US economy’s growth has slowed, recording its lowest pace in two years in the first quarter. The Federal Reserve is now expected to maintain interest rates at their current 23-year high until September, delaying any potential rate cuts.
While most commodities are projected to experience a slowdown, copper prices could rise due to its importance in electric vehicle production. President Joe Biden’s push for electric vehicle adoption in the US, combined with competition from China in the EV market, could further influence commodity prices in the coming months.
Overall, tensions in the Middle East are expected to drive up the costs of oil and gold, with conflicts typically leading to higher prices in these commodities. The World Bank anticipates Brent crude oil prices to average $84 per barrel in 2024 before falling to $79 in 2025. Gold prices have also been on the rise as investors seek safe-haven assets against inflation.
