Recently, tensions in the Middle East have escalated, putting at risk the progress made in addressing global inflation. The Israeli military campaign in Gaza has contributed to the tension and led to higher oil prices. The World Bank has warned that these tensions are driving up commodity prices, particularly for oil and gold, and that the deflationary impact of lower commodity prices has ended. This could lead to higher global inflation as interest rates may need to remain higher than expected in the coming years.
Moreover, over 200 days after the conflict in Gaza, regional tensions continue to persist. According to Indermeet Gill, Chief Economist and First Vice President of the World Bank Group, the decline in commodity prices that helped reduce inflation has stalled. He expressed concern that a significant energy shock caused by the conflict could reverse progress made in reducing inflation over the past two years. The bank cautioned that if there were significant disruptions to oil supply, Brent crude could rise to $92 or even $100, leading to a one percentage point increase in global inflation.
In addition to its impact on inflation, the conflict in the Middle East could delay interest rate cuts and exacerbate food insecurity. High food prices due to armed conflicts have already been on the rise globally. The World Bank emphasized that a peaceful resolution is necessary for tensions in