Real Assets
The Inflation Factor: How Rising Food and Energy Prices Impact the Economy
How Rising Food and Energy Prices Impact the Economy
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 Equivalent | Crude Oil | Natural Gas | Coal |
|---|---|---|---|
| 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 Target | 2019 | 2020 | 2021 | Apr 2022 |
|---|---|---|---|---|
| Emerging Markets and Developing Economies | 20% | 20% | 55% | 87% |
| Advanced Economies | 9% | 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:
| Date | Core CPI at Beginning of Cycle | Magnitude of Rate Hikes Over Course of Tightening Cycle |
|---|---|---|
| 1979-81 | 9.3% | 9.0 p.p |
| 1983-84 | 4.6% | 3.0 p.p |
| 1986-89 | 3.6% | 4.0 p.p |
| 1994-95 | 2.8% | 3.0 p.p |
| 1999-00 | 2.0% | 1.75 p.p |
| 2004-06 | 1.9% | 4.25 p.p. |
| 2015-19 | 2.1% | 2.25 p.p |
| 2022-23 | 6.4% | 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 Scenarios | 2021 | 2022 | 2023 |
|---|---|---|---|
| Baseline | 5.7% | 2.9% | 3.0% |
| Including Fed tightening | 2.6% | 2.4% | |
| Including Energy price spike | 2.2% | 1.6% | |
| Including China COVID-19 | 2.1% | 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 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 |
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.
Real Assets
Charted: The Value Gap Between the Gold Price and Gold Miners
While gold prices hit all-time highs, gold mining stocks have lagged far behind.
Gold Price vs. Gold Mining Stocks
This was originally posted on our Voronoi app. Download the app for free on Apple or Android and discover incredible data-driven charts from a variety of trusted sources.
Although the price of gold has reached new record highs in 2024, gold miners are still far from their 2011 peaks.
In this graphic, we illustrate the evolution of gold prices since 2000 compared to the NYSE Arca Gold BUGS Index (HUI), which consists of the largest and most widely held public gold production companies. The data was compiled by Incrementum AG.
Mining Stocks Lag Far Behind
In April 2024, gold reached a new record high as Federal Reserve Chair Jerome Powell signaled policymakers may delay interest rate cuts until clearer signs of declining inflation materialize.
Additionally, with elections occurring in more than 60 countries in 2024 and ongoing conflicts in Ukraine and Gaza, central banks are continuing to buy gold to strengthen their reserves, creating momentum for the metal.
Traditionally known as a hedge against inflation and a safe haven during times of political and economic uncertainty, gold has climbed over 11% so far this year.
According to Business Insider, gold miners experienced their best performance in a year in March 2024. During that month, the gold mining sector outperformed all other U.S. industries, surpassing even the performance of semiconductor stocks.
Still, physical gold has outperformed shares of gold-mining companies over the past three years by one of the largest margins in decades.
| Year | Gold Price | NYSE Arca Gold BUGS Index (HUI) |
|---|---|---|
| 2023 | $2,062.92 | $243.31 |
| 2022 | $1,824.32 | $229.75 |
| 2021 | $1,828.60 | $258.87 |
| 2020 | $1,895.10 | $299.64 |
| 2019 | $1,523.00 | $241.94 |
| 2018 | $1,281.65 | $160.58 |
| 2017 | $1,296.50 | $192.31 |
| 2016 | $1,151.70 | $182.31 |
| 2015 | $1,060.20 | $111.18 |
| 2014 | $1,199.25 | $164.03 |
| 2013 | $1,201.50 | $197.70 |
| 2012 | $1,664.00 | $444.22 |
| 2011 | $1,574.50 | $498.73 |
| 2010 | $1,410.25 | $573.32 |
| 2009 | $1,104.00 | $429.91 |
| 2008 | $865.00 | $302.41 |
| 2007 | $836.50 | $409.37 |
| 2006 | $635.70 | $338.24 |
| 2005 | $513.00 | $276.90 |
| 2004 | $438.00 | $215.33 |
| 2003 | $417.25 | $242.93 |
| 2002 | $342.75 | $145.12 |
| 2001 | $276.50 | $65.20 |
| 2000 | $272.65 | $40.97 |
Among the largest companies on the NYSE Arca Gold BUGS Index, Colorado-based Newmont has experienced a 24% drop in its share price over the past year. Similarly, Canadian Barrick Gold also saw a decline of 6.5% over the past 12 months.
Real Assets
200 Years of Global Gold Production, by Country
Global gold production has grown exponentially since the 1800s, with 86% of all above-ground gold mined in the last 200 years.
Visualizing Global Gold Production Over 200 Years
Although the practice of gold mining has been around for thousands of years, it’s estimated that roughly 86% of all above-ground gold was extracted in the last 200 years.
With modern mining techniques making large-scale production possible, global gold production has grown exponentially since the 1800s.
The above infographic uses data from Our World in Data to visualize global gold production by country from 1820 to 2022, showing how gold mining has evolved to become increasingly global over time.
A Brief History of Gold Mining
The best-known gold rush in modern history occurred in California in 1848, when James Marshall discovered gold in Sacramento Valley. As word spread, thousands of migrants flocked to California in search of gold, and by 1855, miners had extracted around $2 billion worth of gold.
The United States, Australia, and Russia were (interchangeably) the three largest gold producers until the 1890s. Then, South Africa took the helm thanks to the massive discovery in the Witwatersrand Basin, now regarded today as one of the world’s greatest ever goldfields.
South Africa’s annual gold production peaked in 1970 at 1,002 tonnes—by far the largest amount of gold produced by any country in a year.
With the price of gold rising since the 1980s, global gold production has become increasingly widespread. By 2007, China was the world’s largest gold-producing nation, and today a significant quantity of gold is being mined in over 40 countries.
The Top Gold-Producing Countries in 2022
Around 31% of the world’s gold production in 2022 came from three countries—China, Russia, and Australia, with each producing over 300 tonnes of the precious metal.
| Rank | Country | 2022E Gold Production, tonnes | % of Total |
|---|---|---|---|
| #1 | 🇨🇳 China | 330 | 11% |
| #2 | 🇷🇺 Russia | 320 | 10% |
| #3 | 🇦🇺 Australia | 320 | 10% |
| #4 | 🇨🇦 Canada | 220 | 7% |
| #5 | 🇺🇸 United States | 170 | 5% |
| #6 | 🇲🇽 Mexico | 120 | 4% |
| #7 | 🇰🇿 Kazakhstan | 120 | 4% |
| #8 | 🇿🇦 South Africa | 110 | 4% |
| #9 | 🇵🇪 Peru | 100 | 3% |
| #10 | 🇺🇿 Uzbekistan | 100 | 3% |
| #11 | 🇬🇭 Ghana | 90 | 3% |
| #12 | 🇮🇩 Indonesia | 70 | 2% |
| - | 🌍 Rest of the World | 1,030 | 33% |
| - | World Total | 3,100 | 100% |
North American countries Canada, the U.S., and Mexico round out the top six gold producers, collectively making up 16% of the global total. The state of Nevada alone accounted for 72% of U.S. production, hosting the world’s largest gold mining complex (including six mines) owned by Nevada Gold Mines.
Meanwhile, South Africa produced 110 tonnes of gold in 2022, down by 74% relative to its output of 430 tonnes in 2000. This long-term decline is the result of mine closures, maturing assets, and industrial conflict, according to the World Gold Council.
Interestingly, two smaller gold producers on the list, Uzbekistan and Indonesia, host the second and third-largest gold mining operations in the world, respectively.
The Outlook for Global Gold Production
As of April 25, gold prices were hovering around the $2,000 per ounce mark and nearing all-time highs. For mining companies, higher gold prices can mean more profits per ounce if costs remain unaffected.
According to the World Gold Council, mined gold production is expected to increase in 2023 and could surpass the record set in 2018 (3,300 tonnes), led by the expansion of existing projects in North America. The chances of record mine output could be higher if gold prices continue to increase.
-
Electrification3 years agoRanked: The Top 10 EV Battery Manufacturers
-
Electrification2 years agoThe Key Minerals in an EV Battery
-
Real Assets3 years agoThe World’s Top 10 Gold Mining Companies
-
Misc3 years agoAll the Metals We Mined in One Visualization
-
Electrification3 years agoThe Biggest Mining Companies in the World in 2021
-
Energy Shift2 years agoWhat Are the Five Major Types of Renewable Energy?
-
Electrification2 years agoMapped: Solar Power by Country in 2021
-
Electrification2 years agoThe World’s Largest Nickel Mining Companies