The World Bank fears that the impact of the Russia-Ukrain crisis on the commodity market which has seen prices of food and energy go up could last till the end of 2024. This is according to the Bank’s latest Commodity Markets Outlook report released on Tuesday, April 26. Price increases for food commodities — of which Russia and Ukraine are large producers — and fertilizers, which rely on natural gas as a production input, have been the largest since 2008. The Bank is not optimistic about energy prices outlook noting that they are set to rise more than 50 per cent in 2022 before easing in 2023 and 2024. Non-energy prices, including agriculture and metals, are projected to increase almost 20 per cent in 2022 and will also moderate in the following years. Nevertheless, commodity prices are expected to remain well above the most recent five-year average. In the event of a prolonged war or additional sanctions on Russia, prices could be even higher and more volatile than currently projected. The price of crude oil is expected to average $100 a barrel in 2022, its highest level since 2013 and an increase of more than 40 per cent compared to 2021. The World Bank projects that prices are expected to moderate to $92 in 2023—well above the five-year average of $60 a barrel. Wheat prices are forecast to increase more than 40 per cent, reaching an all-time high in nominal terms this year. That will put pressure on developing economies that rely on wheat imports, especially from Russia and Ukraine. Metal prices are projected to increase by 16 percent in 2022 before easing in 2023 but will remain at elevated levels. Among the challenges that have been identified is that there is less room now to substitute the most affected energy commodities for other fossil fuels—because price increases have been broad-based across all fuels. Further, it has been reported that the increase in prices of some commodities is also driving up prices of other commodities, for instance, fuel prices have also driven up cost of consumables. Indermit Gill, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions said that this is the largest commodity shock experienced since the 1970s. “As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel and fertilizers. These developments have started to raise the spectre of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy,” he said. Ayhan Kose, Director of the World Bank’s Prospects Group said that the resulting increase in food and energy prices is taking a significant human and economic toll—and it will likely stall progress in reducing poverty. “Higher commodity prices exacerbate already elevated inflationary pressures around the world,” Kose said. John Baffes, Senior Economist in the World Bank’s Prospects Group predicted that the commodity markets will have a lasting knock on effect. “The sharp rise in input prices, such as energy and fertilizers, could lead to a reduction in food production particularly in developing economies. Lower input use will weigh on food production and quality, affecting food availability, rural incomes, and the livelihoods of the poor,” Baffes said. Among the recommendations include urging policymakers to act promptly to minimize harm to their citizens—and to the global economy. They further called for targeted safety-net programs such as cash transfers, school feeding programs, and public work programs—rather than food and fuel subsidies.
