The World Bank Group has hinted on why food and energy crises persisted in Nigeria and other emerging economies in recent months.
In its latest commodity markets outlook released at the weekend, the apex global bank said the shrinking value of the naira and currencies of most developing economies was driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already faced.
It explained that in the United State (U.S.) dollar terms, the prices of most commodities have declined from their recent peaks amid concerns of an impending global recession.
The naira exchanges at N438/$ at the official market, and above N780/$ at the parallel market. The local currency is projected to depreciate by 20 per cent in 2023.
From the Russian invasion of Ukraine in February 2022 through the end of last month, the price of Brent crude oil in U.S. dollars fell nearly six per cent.
The bank explained that because of currency depreciations, almost 60 per cent of oil-importing emerging market and developing economies witnesses an increase in domestic-currency oil prices during the period.
“Nearly 90 per cent of these economies also saw a larger increase in wheat prices in local-currency terms compared to the rise in U.S. dollars.
“Elevated prices of energy commodities that serve as inputs to agricultural production have been driving up food prices,” it said.
During the first three quarters of 2022, food-price inflation in Sub-Saharan Africa, Eastern Europe and Central Asia averaged between 12 and 15 per cent.
“Although many commodity prices have retreated from their peaks, they are still high, compared to their average level over the past five years,” said the World Bank’s Vice President for Equitable Growth, Finance, and Institutions, Pablo Saavedra.
“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,” she added.
After surging by about 60 per cent in 2022, energy prices are projected to decline 11 per cent in 2023.
Despite this moderation, energy prices will next still be 75 per cent above their average over the past five years.
“The combination of elevated commodity prices and persistent currency depreciations translate into higher inflation in many countries,” Director of the World Bank’s Prospects Group and EFI Chief Economist, which produces the Outlook report, Ayhan Kose, said.
“Policymakers in emerging markets 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, he added.”
The bank said the outlook for commodity prices is subject to many risks, saying: “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. 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,” Senior Economist in the World Bank’s Prospects Group, John Baffes, said.
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