The major shock to commodity markets, altering global patterns of trade, production, and consumption brought about by the Russia-Ukraine war could keep prices at historically high levels through the end of 2024, according to the World Bank’s latest Commodity Markets Outlook report.
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 report notes that energy prices are also expected 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.
“Commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine. 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.”
Ayhan Kose, Director of the World Bank’s Prospects Group, which produces the Outlook report.
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 report noted.
The price of Brent 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. Prices are expected to moderate to $92 in 2023—well above the five-year average of $60 a barrel.
Wheat prices are also expected to increase more than 40 per cent, reaching an all-time high in nominal terms this year.
“Commodity markets are under tremendous pressure, with some commodity prices reaching all-time highs in nominal terms. This will have lasting knock-on effects. 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.”
John Baffes, Senior Economist in the World Bank’s Prospects Group.
