The World Bank said on Thursday that ongoing tensions in the Middle East threaten to halt, or even undermine, some aspects of recent progress in tackling global inflation.
The ongoing Israeli military campaign in Gaza has caused tensions to rise across the region and pushed oil prices higher.
The bank announced in its forecasts for global commodity markets that “the increasing tensions in the Middle East are exerting upward pressure on commodity prices, especially oil and gold.” He added, “It appears that the favorable deflationary factors resulting from moderation in commodity prices have ended.” At the same time, higher oil prices could exacerbate global inflation.
Regional tensions remain high, more than 200 days after the war in Gaza.
“The decline in commodity prices, which represents one of the main reasons for the decline in inflation, has basically stopped,” said Indermeet Gill, World Bank Group’s Chief Economist and First Vice President.
He added, “This means that interest rates may remain higher than expectations for the current and next years.”
Gill continued, “Our world today is going through a difficult period, and a major energy shock may undermine much of the progress achieved in reducing inflation over the past two years.”
The bank said that if there were minor supply disruptions linked to the conflict, the average price of a barrel of Brent crude could rise to $92, while “severe disruptions” would raise the price to $100.
The bank explained that this worst-case scenario would have the effect of raising global inflation by about one percentage point this year.
He added that, in addition to delaying interest rate cuts, it could also cause an increase in food insecurity, which has worsened significantly in the past year, due to armed conflicts and high food prices.
