By Onome Amuge
The depreciation of Nigeria’s currency as well as currencies of other developing economies has accelerated food and fuel prices in ways that could exacerbate the food and energy crises hurting their economic development, according to the World Bank’s Commodity Outlook Report.
Though the Russian invasion of Ukraine in February 2022 resulted in the escalation of commodity prices globally, prices have since the end of September declined significantly with the prices of Brent crude in US dollars falling nearly six percent.
However, almost 60 percent of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices during the same period. Nearly 90 percent of these economies also saw a larger increase in wheat prices in local-currency terms compared to the rise in US dollars, a factor blamed on currency depreciations.
According to the World Bank, elevated prices of energy commodities that serve as inputs to agricultural production have been driving up food prices in developing economies, specifically in Africa, Asia, Eastern Europe, Latin America, and the Caribbean.
Ayhan Kose, director of the World Bank’s Prospects Group which produced the report, said the combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many developing economies.
According to Kose, policymakers in emerging markets and developing economies have limited room to manage the most pronounced global inflation cycle in decades.
He emphasised the need for governments in those regions 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 its price outlook for 2023, the report said the price of Brent crude is expected to average $92 a barrel in 2023, well above the five-year average of $60 a barrel. Meanwhile, both natural gas and coal prices are projected to ease in 2023 from record highs in 2022.
For soft commodities, agricultural prices are expected to drop five percent in 2023. 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, according to the World Bank.
Metal prices are also projected to decline 15 percent in 2023, impacted by weaker global growth and concerns about a slowdown in China. Concerns about a possible global recession next year were also identified to have already contributed to a sharp decline in copper and aluminum prices.
Despite the projected decline in the outlook for commodities, the World Bank said prices are subject to many risks as higher-than-expected energy prices could feed through to non-energy prices, especially food, prolonging challenges associated with food insecurity.
Also, a sharper slowdown in global growth also presents a key risk, especially for crude oil and metals prices.
John Baffes, senior economist in the World Bank’s Prospects Group, also pointed out that the forecast of a decline in agricultural prices is subject to an array of risks.
Baffes highlighted some significant factors likely to impact prices of commodities, including export disruptions by Ukraine or Russia which could again interrupt global grain supplies; additional increases in energy prices likely exert upward pressure on grain and edible oil prices; and adverse weather patterns which could reduce crop yields, given that 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.
Pablo Saavedra, the World Bank’s president for equitable growth, finance and institutions, observed that though many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years.
Saavedra also remarked that a further spike in world food prices could prolong the challenges of food insecurity across developing countries.
To this end, he noted that an array of policies is needed to foster supply, facilitate distribution, and support real incomes in developing economies.
