World Bank Warns That Increasing Power Prices Pose A ‘Significant’ Danger Of Inflation

World Bank Warns That Increasing Power Prices Pose A ‘Significant’ Danger Of Inflation

Electricity prices are expected to gradually rise in 2022 after spiking by more than 80% in 2021. According to the World Bank’s new Commodity Markets Outlook, which was released on Thursday, energy prices pose significant near-term threats to global inflation in several developing countries. Energy costs, according to the multilateral development bank, should begin to drop in the second period of 2022 as supply limitations loosen.  Non-energy prices, such as agricultural and metal prices, are also likely to be reduced after experiencing significant increases in 2021.

 According to Ayhan Kose, senior economist and chairman of the World Bank’s Prospects Group, which generates the Outlook summary, “the spike in electricity prices presents potential relatively close risks to worldwide inflation. If maintained, this could also weigh on expansion in energy-importing nations. A more dramatic comeback in stock prices is emerging than had been anticipated. The latest price instability may make it more difficult for countries to make policy decisions as they recover from the previous year’s global slump.”

Coal And Natural Gas Prices Reach Record Price

Some asset prices surged to or beyond levels not seen since a rise more than a decade earlier, according to the Bank. Natural gas and coal costs, for example, have hit record highs as a result of supply restrictions and resurgent demand for electricity. However, prices are projected to decrease in 2022 as demand eases and availability recovers, the bank said.

Because of current low stockpiles and continuing supply constraints, the bank cautioned that additional price increases could emerge in the near future. Some other potential risk factors were extreme weather occurrences, an uneven COVID-19 recovery, and the possibility of more outbreaks, supply shortages, as well as ecological policies and regulations.

In addition, greater food costs were pushing up food-price inflation and generating concerns about food security in some emerging countries. Crude oil prices, according to the bank, will reach $74 per barrel in 2022, bolstered by increasing demand, up from a projected $70 per barrel in 2021, before dropping to $65 per barrel in 2023.

The use of oil products as a replacement for natural gas posed a significant upside risk to the consumption picture, despite the fact that increased energy prices may begin to impact on global growth in the future. Following a 48 percent increase in metal prices in 2021, the bank forecasted a 5% decrease in metal prices in 2022. Agricultural prices are expected to fall moderately next year after rising by 22% this year.

The Bank’s report also stated that altering weather patterns as a result of climate change posed an increasing threat to the energy markets, with the ability to disrupt both demand and supply at the same time. Per the report, countries would gain from speeding up the installation of alternative energy sources and reducing their reliance on fossil-fuel sources.