The depreciating value of the currencies of most developing economies is pushing food and fuel prices higher, which could deepen the food and energy crises that many of them already face, according to a latest report. In U.S. dollar terms, the prices of most commodities have retreated from their peaks amid concerns of an impending global recession, but they are still high compared to their average level over the past five years, the World Bank says in its commodity markets outlook report.

The price of Brent crude oil in U.S. dollars has seen a downward slide in the recent past, falling nearly 6% from the record high during the Russian invasion of Ukraine in February 2022 to the end of last month. However, due to currency depreciation, nearly 60% of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices during this period. Nearly 90% 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 noted.

“Although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years,” says Pablo Saavedra, the World Bank’s vice president for Equitable Growth, Finance, and Institutions. 

“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,” Saavedra adds. 

The report highlighted that elevated prices of energy commodities that serve as inputs to agricultural production have been driving up food prices. “During the first three quarters of 2022, food-price inflation in South Asia averaged more than 20%. 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%. East Asia and the Pacific has been the only region with low food-price inflation, partly because of broadly stable prices of rice, the region’s key staple,” it says.

On energy prices, the report projected that the crude prices are expected to decline now after witnessing high volatility since the outbreak of the war in Ukraine. After surging by about 60% in 2022, energy prices are projected to decline 11% in 2023. Despite this moderation, energy prices next year will still be 75% above their average over the past five years, it said.

Going ahead, 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. 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,” the World Bank said in its report.

Coal production is projected to significantly increase as several major exporters boost output, putting climate-change goals at risk, it added.

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

“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,” Kose further said.

As per the report, 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, it added.

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