The shrinking value of currencies of most developing economies is driving up food and fuel prices, which ultimately could deepen the food and energy crises in these countries, according to the World Bank’s latest Commodity Markets Outlook report.
The World Bankreport said that prices of most commodities have declined from their recent peaks amid concerns of an impending global recession. “From the Russian invasion of Ukraine in February 2022 through the end of last month, the price of Brent crude oil in U.S. dollars fell nearly 6 percent. Yet, because of currency depreciations, almost 60 percent of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices during this period. Nearly 90 percent of these economies also saw a larger increase in wheat prices in local-currency terms compared to the rise in U.S. Dollars,” the report mentioned.
DEPRECIATION ; FOOD
The report stated that elevated prices of energy commodities that serve as inputs to agricultural production drove up food prices. During the first three quarters of 2022, food-price inflation in South Asia averaged more than 20 percent. Food price inflation in other regions, including Latin America and the Caribbean, the Middle East and North Africa, Sub-Saharan Africa, and Eastern Europe and Central Asia, averaged between 12 and 15 percent. East Asia and the Pacific has been the only region with low food-price inflation, partly because of broadly stable prices of rice, the report said.
World Bank’s Vice President for Equitable Growth, Finance, and Institution Pablo Saavedrasaid, “ “Although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years.” “A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution, and support real incomes.”
Meanwhile, Director of the World Bank’s Prospects Group and EFI Chief Economist Ayhan Koseopined; “The combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many countries,” said,, which produces the Outlook report. “Policy makers in emerging market and developing economies have limited room to manage the most pronounced global inflation cycle in decades. They need to carefully calibrate monetary and fiscal policies, clearly communicate their plans, and get ready for a period of even higher volatility in global financial and commodity markets.”
In the report, the World Bank said that energy prices diverged widely and have been extremely volatile since the outbreak of Ukraine war. “The price of Brent crude oil is expected to average $92 a barrel in 2023—well above the five-year average of $60 a barrel. Both natural gas and coal prices are projected to ease in 2023 from record highs in 2022,”the authors of the report said. However, by 2024, Australian coal and U.S. natural-gas prices are still expected to be double their average over the past five years, while European natural gas prices could be nearly four times higher. Coal production is projected to significantly increase as several major exporters boost output, putting climate-change goals at risk.
The World Bank also stated that agricultural prices are expected to decline five percent next year. Wheat prices in the third quarter of 2022 fell nearly 20 percent but remain 24 percent higher than a year ago. The decline in agricultural prices in 2023 reflects a better-than-projected global wheat crop, stable supplies in the rice market, and the resumption of grain exports from Ukraine. Metal prices are projected to decline 15 percent in 2023, largely because of weaker global growth and concerns about a slowdown in China.
Senior Economist in the World Bank’s Prospects Group John Baffessaid, “The forecast of a decline in agricultural prices is subject to an array of risks,” said, “First, export disruptions by Ukraine or Russia could again interrupt global grain supplies. Second, additional increases in energy prices could exert upward pressure on grain and edible oil prices. Third, adverse weather patterns can reduce yields; 2023 is likely to be the third La Niña year in a row, potentially reducing yields of key crops in South America and Southern Africa.”