World Bank warns of stagflation due to Russia's Ukraine invasion
World bank
The World Bank has warned that price shocks in food and fuel prices due to Russian invasion of Ukraine will be felt at least till the end of year 2024. This, said that bank, raises the risk of stagflation. The World Bank has expressed its observation in its latest Commodities Market Outlook report.
The report is World Bank's first comprehensive analysis of the war's impact on commodity market. The bank has said that the world is facing biggest commodity price shock since the 1970s.
It is being aggravated, it said, by restrictions in food, fuel and fertiliser trade that are exacerbating already elevated inflationary pressures around the world.
"Policymakers should take every opportunity to increase economic growth at home and avoid actions that bring harm to the global economy," said Indermit Gill, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions.
Russia is the world's largest natural gas and fertiliser exporter, and second largest crude oil exporter. Together with Ukraine, it accounts for nearly a third of global wheat exports, 19% of corn exports and 80% of exports of sunflower oil exports.
There has been a disruption in export and production of natural gas, fertilisers, crude oil and other commodities since Russia's invasion of Ukraine on February 24 this year.
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The bank said commodity prices will only retreat slightly and stay well above the most recent five-year average for the medium term.
"In the event of a prolonged war, or additional (Western) sanctions on Russia, prices could be even higher and more volatile than currently projected," it said.
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In terms of policy responses to the crisis, the bank singled out tax cuts and subsidies that it said tend to exacerbate supply shortfalls and price hikes, calling instead for school feeding programmes as well as cash transfers and public employment programmes for disadvantaged groups.
(With inputs from agencies)