USA — Consumers are expected to continue tightening their belts as the impact of the Ukraine war on food prices is expected to linger a while longer, a new World Bank Commodity Markets Outlook report has revealed.
According to the report, the war in Ukraine has dealt a major shock to commodity markets, altering global patterns of trade, production, and consumption in ways that will keep prices at historically high levels through the end of 2024,
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.
“Overall, this amounts to the largest commodity shock we’ve 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,” said Indermit Gill, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions.
“These developments have started to raise the specter of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy.”
World Bank projects that non-energy prices, including agriculture and metals, are projected to increase almost 20 percent in 2022 before starting to 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, the World Bank anticipates that prices could be even higher and more volatile than currently projected.
“Commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine,” said Ayhan Kose, Director of the World Bank’s Prospects Group, which produces the Outlook report.
“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.”
Wheat prices are forecast to increase more than 40 percent, reaching an all-time high in nominal terms this year, putting pressure on developing economies that rely on wheat imports, especially from Russia and Ukraine.
John Baffes, Senior Economist in the World Bank’s Prospects Group notes that 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 adds.
World Bank further noted that in the near-term, higher prices threaten to disrupt or delay the transition to cleaner forms of energy with several countries announcing plans to increase the production of fossil fuels.
The report urges policymakers to act promptly to minimize harm to their citizens—and to the global economy and calls for targeted safety-net programs such as cash transfers, school feeding programs, and public work programs—rather than food and fuel subsidies.
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