Global inflation is “undefeated” and risks keeping borrowing costs higher for longer, the World Bank has warned in a blow to hopes of imminent rate cuts.
High commodity prices mean there is a considerable risk that inflation could flare up again and wipe out the progress in stabilising prices over the past year, according to top officials.
Chief economist Indermit Gill said that “global inflation remains undefeated”.
He added: “A key force for disinflation, falling commodity prices, has essentially hit a wall.
“That means interest rates could remain higher than currently expected this year and next. The world is at a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years.”
Oil prices have risen by a fifth since December and markets remain on edge after missile strikes between Iran and Israel raised concerns about an escalating conflict across the Middle East.
Ayhan Kose, the World Bank’s deputy chief economist, warned that geopolitical instability was “keeping upward pressure on prices of major commodities and stoking risks of sharp price movements.”
Ayhan Kose said: “Central banks must remain alert about the inflationary implications of commodity price spikes amid elevated geopolitical tensions.”
Oil, copper and gold are all much higher than in the pre-pandemic years, the World Bank said.
Crude oil will average $84 a barrel in 2024, which is more than double the pre-Covid average of $34, the institution predicted.
It warned that an escalation of conflict in the Middle East could push up the prices of natural gas, fertilisers and food.
Meanwhile, the net-zero transition is boosting prices of metals that are critical to rolling out green technologies.
The dearth of copper, which is needed for electric vehicles and the grid, has surged to a two-year high.
Meanwhile, gold is also expected to keep breaking records this year.
The World Bank’s inflation warning adds to growing pessimism about the prospect for steep interest rate cuts around the world.
As recently as last month investors were predicting three rate cuts in both the US and the UK. However, markets now see just two before the end of 2024, with some investors betting that rates in the US could in fact rise before cuts begin.
It comes amid signs of persistent inflation in the US and rising fuel costs in the UK.
Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.
