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The Inflation Factor: How Rising Food and Energy Prices Impact the Economy

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The Inflation Factor: How Rising Food and Energy Prices Impact the Economy

How Rising Food and Energy Prices Impact the Economy

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Since Russia’s invasion of Ukraine, the effects of energy supply disruptions are cascading across everything from food prices to electricity to consumer sentiment.

In response to soaring prices, many OECD countries are tapping into their strategic petroleum reserves. In fact, since March, the U.S. has sold a record one million barrels of oil per day from these reserves. This, among other factors, has led gasoline prices to fall more recently—yet deficits could follow into 2023, causing prices to increase.

With data from the World Bank, the above infographic charts energy shocks over the last half century and what this means for the global economy looking ahead.

Energy Price Shocks Since 1979

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

U.S.$/bbl EquivalentCrude OilNatural GasCoal
2022*$93$170$61
2008$127$100$46
1979$119$72$33

*2022 forecast

As the above table shows, the annual price of crude oil is forecasted to 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 2022 energy spike is that prices have soared across all fuels. Where price shocks were more or less isolated in the past, many countries such as Germany and the Netherlands are looking to coal to make up for oil supply disruptions. Meanwhile, European natural gas prices have hit record highs.

Food prices have also spiked. Driven by higher input costs across fuel, chemicals, and fertilizer, agriculture commodity prices are forecasted to rise 18% in 2022. Fertilizer prices alone could increase 70% in part due to Russia’s dominance of the global fertilizer market—exporting more than any country worldwide.

What are 3 Ripple Effects of Rising Energy Prices?

Oil feeds into nearly everything, from food to smartphones. In fact, the price of oil influences as much as 64% of food price movements.

How could energy and food shocks affect the world economy in the near future, and why is a lot riding on the price of oil?

1. Rising Global Inflation

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

Countries With Inflation Above Target201920202021Apr 2022
Emerging Markets and Developing Economies20%20%55%87%
Advanced Economies9%8%67%100%

Sample includes 31 emerging markets and developing economies and 12 advanced economies

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

This has contributed to tighter monetary conditions. The table below shows how rising inflation in the U.S. has corresponded with interest rate hikes since the 1980s:

DateCore CPI at Beginning of CycleMagnitude of Rate Hikes
Over Course of Tightening Cycle
1979-819.3%9.0 p.p
1983-844.6%3.0 p.p
1986-893.6%4.0 p.p
1994-952.8%3.0 p.p
1999-002.0%1.75 p.p
2004-061.9%4.25 p.p.
2015-192.1%2.25 p.p
2022-236.4%2.75 p.p

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

In many cases, when the U.S. has rapidly tightened monetary policy in response to price pressures, emerging markets and developing economies have experienced financial crises amid higher borrowing costs.

2. Slower Global Growth

Energy price shocks could add greater headwinds to global growth prospects:

Global Growth Scenarios202120222023
Baseline5.7%2.9%3.0%
Including Fed tightening2.6%2.4%
Including Energy price spike2.2%1.6%
Including China COVID-192.1%1.5%

Together, price spikes, hawkish monetary policy, and COVID-19 lockdowns in China could negatively impact global growth.

3. Rising Food Insecurity and Social Unrest

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

Number of People in Acute Food Insecurity20202021
Sub-Saharan Africa97M119M
Middle East and North Africa30M32M
South Asia16M29M
Latin America and the Caribbean12M13M

Sustained food shortages and high food prices could send millions into acute food insecurity.

In addition, high fuel and food prices are often correlated with mass protests, political violence, and riots. While Sri Lanka and Peru have already begun to see heightened riots, Turkey and Egypt are also at risk for 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 constraint on economic growth. As the war in Ukraine continues, the outlook for today’s energy market is far from clear as a number of geopolitical factors could sway oil price movements and its corresponding effects.

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Energy

Charted: Global Uranium Reserves, by Country

We visualize the distribution of the world’s uranium reserves by country, with 3 countries accounting for more than half of total reserves.

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A cropped chart visualizing the distribution of the global uranium reserves, by country.

Charted: Global Uranium Reserves, by Country

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

There can be a tendency to believe that uranium deposits are scarce from the critical role it plays in generating nuclear energy, along with all the costs and consequences related to the field.

But uranium is actually fairly plentiful: it’s more abundant than gold and silver, for example, and about as present as tin in the Earth’s crust.

We visualize the distribution of the world’s uranium resources by country, as of 2021. Figures come from the World Nuclear Association, last updated on August 2023.

Ranked: Uranium Reserves By Country (2021)

Australia, Kazakhstan, and Canada have the largest shares of available uranium resources—accounting for more than 50% of total global reserves.

But within these three, Australia is the clear standout, with more than 1.7 million tonnes of uranium discovered (28% of the world’s reserves) currently. Its Olympic Dam mine, located about 600 kilometers north of Adelaide, is the the largest single deposit of uranium in the world—and also, interestingly, the fourth largest copper deposit.

Despite this, Australia is only the fourth biggest uranium producer currently, and ranks fifth for all-time uranium production.

CountryShare of Global
Reserves
Uranium Reserves (Tonnes)
🇦🇺 Australia28%1.7M
🇰🇿 Kazakhstan13%815K
🇨🇦 Canada10%589K
🇷🇺 Russia8%481K
🇳🇦 Namibia8%470K
🇿🇦 South Africa5%321K
🇧🇷 Brazil5%311K
🇳🇪 Niger5%277K
🇨🇳 China4%224K
🇲🇳 Mongolia2%145K
🇺🇿 Uzbekistan2%131K
🇺🇦 Ukraine2%107K
🌍 Rest of World9%524K
Total100%6M

Figures are rounded.

Outside the top three, Russia and Namibia both have roughly the same amount of uranium reserves: about 8% each, which works out to roughly 470,000 tonnes.

South Africa, Brazil, and Niger all have 5% each of the world’s total deposits as well.

China completes the top 10, with a 3% share of uranium reserves, or about 224,000 tonnes.

A caveat to this is that current data is based on known uranium reserves that are capable of being mined economically. The total amount of the world’s uranium is not known exactly—and new deposits can be found all the time. In fact the world’s known uranium reserves increased by about 25% in the last decade alone, thanks to better technology that improves exploration efforts.

Meanwhile, not all uranium deposits are equal. For example, in the aforementioned Olympic Dam, uranium is recovered as a byproduct of copper mining occurring at the same site. In South Africa, it emerges as a byproduct during treatment of ores in the gold mining process. Orebodies with high concentrations of two substances can increase margins, as costs can be shared for two different products.

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