“The war in Ukraine has caused major supply disruptions and has led to historically higher prices for a number of commodities. For most commodities, prices are expected to be significantly higher in 2022 than in 2021 and to remain high in the medium term. The price of Brent crude oil is projected to average $100/bbl in 2022, a 42% increase from 2021 and its highest level since 2013. Non-energy prices are expected to rise about 20% in 2022, with the largest increases in raw materials where Russia or Ukraine are key exporters. Wheat prices, in particular, are forecast to rise more than 40% this year, reaching an all-time high in nominal terms (…) prices are expected to peak in 2022, remain much higher than expected. previously anticipated. The outlook for commodity markets is highly dependent on the duration of the war in Ukraine and the severity of disruptions to commodity flows, with a key risk of higher commodity prices during longer (…) previous increases in the price of oil led to the emergence of new sources of supply and a reduction in demand through improvements in efficiency and the substitution of other basic products. In the event of spikes in food prices, additional land began to be used for production. For policymakers, a short-term priority is to provide targeted support to the poorest households facing higher food and energy prices. In the longer term, they can encourage improvements in energy efficiency, facilitate investment in new sources of energy without carbon emissions and promote more efficient food production. Recently, however, policy responses have tended to favor trade restrictions, price controls and subsidies, which are likely to exacerbate shortages.
This is what the Executive Summary of the report Commodity Markets Outlook, April 2022: The Impact of the War in Ukraine on Commodity Markets, prepared by the World Bank and released last week, says.
The last sentence of the Executive Summary – trade restrictions, price controls and subsidies, which are likely to exacerbate shortages – defines what the government of President Andrés Manuel López Obrador is doing: subsidizing or capping the prices of electricity, gas and gasoline so that their intermediate or final consumers do not feel the full magnitude of the inflationary blow.
This year the subsidy for electricity rates will be at least 73,000 million pesos, that of gasoline will be 400,000 million pesos, and the maximum prices of LP gas are capped by the Energy Regulatory Commission.
AMLO will announce today his plan to combat inflation. If it tends “to favor trade restrictions, price controls and subsidies”, there will most likely be shortages of many products, which instead of helping people, will hurt them.
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Opinionist, columnist, lecturer, media trainer, 35 years of experience in the media, micro-entrepreneur.