World Bank: Elevated Energy, Commodity Prices, Currency Devaluation Responsible for Skyrocketing Food Prices

Gilbert Ekugbe

The World Bank has stated that the shrinking value of the currencies of most developing economies is deepening the food and energy crises that many of them are already facing.  

The multilateral institution stated this in the latest edition of its Commodity Markets Outlook, adding that in the first three quarters of 2022, food-price inflation in South Asia averaged more than 20 per cent while 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 per cent during the first three quarters of 2022.

According to World Bank, the shrinking value of the currencies of most developing economies is also driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already face.

Meanwhile, World Bank has predicted that agricultural prices are expected to decline by five per cent next year, adding that wheat prices in the third quarter of 2022 fell nearly 20 per cent but remained 24 per cent higher than a year ago.

It said: “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.”  

The World Bank’s Vice President for Equitable Growth, Finance, and Institutions, Mr. Pablo Saavedra, said; “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.”  

For the Director of the World Bank’s Prospects Group and EFI Chief Economist, Ayhan Kose, “the combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many countries.

 “Policymakers 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.”  

The outlook for commodity prices is subject to many risks. Energy markets face significant supply concerns as worries about the availability of energy during the upcoming winter will intensify in Europe.

Higher-than-expected energy prices could feed through to non-energy prices, especially food, prolonging challenges associated with food insecurity. A sharper slowdown in global growth also presents a key risk, especially for crude oil and metals prices.

“The forecast of a decline in agricultural prices is subject to an array of risks,” the Senior Economist in the World Bank’s Prospects Group, John Baffes, 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, “he warned.