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World Bank warns increasing electricity tariffs will worsen inflation

The World Bank has warned that increasing electricity tariffs in Nigeria and other emerging nations could push inflation higher in 2022.

According to the World Bank’s newest Commodity Markets Outlook prediction, electricity prices, which peaked at 80% higher this year than in 2020, will remain high next year.

Prices, on the other hand, will begin to fall in the second half of the year as supply constraints ease.

The Bank notes that the New Year will be defined by global inflationary pressures and a potential shift in economic development from energy-importing to energy-exporting countries.

Spike in electricity tariffs offers considerable near-term risks to global inflation and, if prolonged, might stifle growth in energy-importing countries.

Chief Economist and Director, World Bank’s Prospects Group, Ayhan Kose, argued that spike in electricity tariffs offers considerable near-term risks to global inflation and, if prolonged, might stifle growth in energy-importing countries.

Multilateral institutions said the recent sharp rebound in commodity prices is more pronounced than previously expected. Recent volatility in prices could complicate policy decisions as countries recover from last year’s global recession, the institution said.

Following up on this year’s gains in non-energy prices, including agriculture and metals, the bank projected a decrease in 2022. Some commodity prices increased to (or perhaps above) levels not seen before the 2011 price rise.

Natural gas and coal prices have reached record highs due to supply restrictions and resurgent electrical demand, according to the bank, though they are likely to fall in 2022 as demand eases and supply recovers.

However, due to extremely low inventories and continuous supply bottlenecks, significant price increases may occur shortly. Oil demand improves and reaches pre-pandemic levels, putting the price of a barrel of crude oil at $74 in 2022, according to the Bank.

Although increased energy prices may start to weigh on global growth, the use of crude oil as a natural gas alternative also poses a significant upside risk to demand.

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