IMF says prolonged increase in energy prices could boost inflation, lower growth

WASHINGTON: The IMF on Thursday said it was closely monitoring developments in the Iran war and the resulting disruptions to energy production, warning that prolonged increases in energy prices could boost inflation and lower growth globally.

Julie Kozack, spokesperson for the International Monetary Fund, told reporters that the conflict had already resulted in significant disruptions to seaborne oil and natural gas shipments, sending crude oil prices up by more than 50% to over $100 a barrel.

The global lender had not received any formal requests for emergency financing but stood ready to help member countries as needed, Kozack said. She said IMF officials were engaging actively with finance ministers and central bankers from member countries, as well as with regional institutions.

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Kozack said the overall impact of the war would depend on its duration, intensity and extent. The IMF will include the war in its updated global economic outlook, to be released in mid-April during the IMF-World Bank spring meetings.

She cited an IMF “rule of thumb” which held that every 10% increase in energy prices, if sustained for about a year, would result in a 40-basis point increase in global inflation and a drop in output of 0.1% to 0.2%.

If the oil prices remain over $100 for a year, that would translate into significant impacts on inflation and global economic output.

Central banks, she said, should remain vigilant in the wake of rising energy prices, with a careful eye on whether inflation was expanding beyond energy prices and whether inflation expectations were remaining well-anchored.

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She said the IMF’s preliminary assessment was that the war would weaken growth in Gulf Cooperation Council (GCC) countries, but gave no specifics. Much would depend, she noted, on the countries’ ability to resume exports of oil and gas supplies.

(Reporting by Andrea Shalal and Rodrigo Campos; Editing by Chizu Nomiyama)