BAKU, Azerbaijan, April 4. While commodity prices will remain volatile in the near term, they will ease back slowly from current highs in the rest of this year, Trend reports with reference to Capital Economics, UK-based research and consulting company.
The company believes that energy and food inflation will therefore slow, but from higher rates than it had forecast previously.
“Higher commodity prices are the key reason why we have revised up our headline inflation forecasts. Given our higher oil price forecasts, we now expect the fuel contribution to inflation in major DMs to lift the headline rate by 0.6%-pts on average by the middle of the year, compared to our pre-invasion forecast. And given higher natural gas prices, we expect the contribution from ‘household energy’ to peak at 0.8%-pts in April, and to remain elevated thereafter. Altogether, energy effects alone will boost DM inflation by 0.7%-pts over 2022 as a whole compared to our pre-invasion forecast,” reads a report released by Capital Economics.
The company analysts point out that the link between food CPI inflation and agricultural commodity prices is fairly weak, since other factors such as retail costs have a bigger impact on food inflation than wholesale prices.
“Nonetheless, our forecast for higher agricultural prices appears broadly consistent with a further rise in food CPI inflation. We expect this to add a further 0.2%-pts to inflation in major DMs this year. On balance, we still think that the risks to commodity prices are skewed to the upside. In an ‘extreme’ scenario, where there is a blanket EU ban on energy imports from Russia, oil prices could reach $150pb and natural gas prices return to previous peaks and remain elevated thereafter. In this scenario, higher energy inflation could add a further 1%-pt to headline inflation in major DMs this year,” reads the report.
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