Display of US interest rates from 2020

How rising food and energy prices affect the economy

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Since the Russian invasion of Ukraine, the effects of power outages have been cascading across everything from food prices to electricity to consumer sentiment.

In response to the surge in prices, many OECD countries are tapping into their strategic oil reserves. In fact, since March, the United States has sold a record one million barrels of oil per day from these reserves. This, among other factors, has led to gasoline prices falling more recently, but deficits could occur in 2023, causing prices to rise.

With data from the World Bank, the above infographic illustrates the energy shocks over the past half century and what it means for the forward-looking global economy.

Energy price shock since 1979

How does today’s energy price shock compare to previous peaks in real terms?

US $ / bbl equivalent Raw oil Natural gas Coal
2022 * $ 93 $ 170 $ 61
2008 $ 127 $ 100 $ 46
1979 $ 119 $ 72 $ 33

* Forecast 2022

As the table above shows, the annual price of crude oil is expected to be average $ 93 per barrel equivalent in 2022⁠. By comparison, during the 2008 and 1979 price shocks, crude oil averaged $ 127 and $ 119 per barrel, respectively.

What distinguishes the energy peak of 2022 is that prices have soared on all fuels. Where in the past price shocks were more or less isolated, many countries such as Germany and the Netherlands are looking for coal to compensate for oil supply disruptions. Meanwhile, natural gas prices in Europe have hit record highs.

Food prices have also gone up. Driven by rising fuel, chemical and fertilizer input costs, agricultural commodity prices are expected to rise 18% in 2022. Fertilizer prices alone could rise 70% partly due to Russia’s dominance of the global fertilizer market, exporting more than any other country in the world.

What are the 3 knock-on effects of rising energy prices?

Oil feeds on almost everything from food to smartphones. In fact, the price of oil affects up to 64% of food price movements.

How could energy and food shocks affect the world economy in the near future and why is so much oil price dependent?

1. Increase in global inflation

In 2022, inflation has become a global phenomenon, affecting 100% of advanced countries and 87% of emerging markets and developing economies analyzed by the World Bank.

Countries with above target inflation 2019 2020 2021 April 2022
Emerging markets and developing economies 20% 20% 55% 87%
Advanced Economics 9% 8% 67% 100%

The sample includes 31 emerging markets and developing economies and 12 advanced economies

By contrast, around two-thirds of advanced economies and just over half of emerging markets experienced above target inflation in 2021.

This contributed to tighter monetary conditions. The table below shows how the rise in inflation in the United States has matched the interest rate hikes since the 1980s:

Date Core CPI at the start of the cycle Extent of rate increases
During the tightening cycle
1979-81 9.3% 9.0 p
1983-84 4.6% 3.0 p
1986-89 3.6% 4.0 p
1994-95 2.8% 3.0 p
1999-00 2.0% 1.75 p
2004-06 1.9% 4.25 p
2015-19 2.1% 2.25 p
2022-23 6.4% 2.75 pp

2023 is an estimate based on market expectations of the Fed Funds rate level in mid-2023. US Core CPI for 2023 based on the latest available data.

In many cases, as the US quickly tightened monetary policy in response to price pressures, emerging markets and developing economies experienced financial crises due to rising borrowing costs.

2. Slower global growth

Energy price shocks could add more barriers to global growth prospects:

Global growth scenarios 2021 2022 2023
Base line 5.7% 2.9% 3.0%
Including Fed tightening 2.6% 2.4%
Including the spike in energy prices 2.2% 1.6%
Including China COVID-19 2.1% 1.5%


Together, price spikes, aggressive monetary policy and the COVID-19 freeze in China could negatively impact global growth.

3. Increase in food insecurity and social unrest

Even before the 2022 energy price shock, global food insecurity was increasing due to COVID-19 and mounting inflationary pressures.

Number of people suffering from acute food insecurity 2020 2021
Sub-Saharan Africa 97M 119M
Middle East and North Africa 30M 32M
South Asia 16M 29M
Latin America and the Caribbean 12M 13M


Continued food shortages and high food prices could send millions of people into severe food insecurity.

Furthermore, high fuel and food prices are often linked to mass protests, political violence and riots. While Sri Lanka and Peru have already started to see escalating riots, Turkey and Egypt are also at risk of social unrest as the cost of living accelerates and food insecurity worsens.

Global challenges

Since World War II, oil price shocks have been a major brake on economic growth. As the war in Ukraine continues, the prospects for today’s energy market are far from clear as a number of geopolitical factors could influence oil price movements and its corresponding effects.

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