Global Commodity Prices Level Off, Hurting Prospects for Lower Inflation

April 25, 2024--Major flare-up in Middle-East conflict could stoke global inflation
Global commodity prices are leveling off after a steep descent that played a decisive role in whittling down overall inflation last year, which could make it harder for central banks to cut interest rates quickly, according to the World Bank's latest Commodity Markets Outlook. The report also finds that a major outbreak of conflict in the Middle East could halt the inflationary decline that has occurred over the past two years.

Between mid-2022 and mid-2023, global commodity prices plummeted by nearly 40%. This helped to drive most of the roughly 2-percentage-point reduction in global inflation between 2022 and 2023. Since mid-2023, however, the World Bank's index of commodity prices has remained essentially unchanged. Assuming no further flare-up in geopolitical tensions, the Bank's forecasts call for a decline of 3% in global commodity prices in 2024 and 4% in 2025. That pace will do little to subdue inflation that remains above central bank targets in most countries. It will keep commodity prices about 38% higher than they were on average in the five years before the COVID-19 pandemic.

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