Currency devaluation may intensify food, energy crisis: WB

The shrinking value of the currencies of most developing economies is driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already face, according to the World Bank’s latest Commodity Markets Outlook report.

In US dollar terms, the prices of most commodities have declined from their recent peaks amid concerns of an impending global recession, the report documents.

From the Russian invasion of Ukraine in February 2022 through the end of last month, the price of Brent crude oil in US dollars fell nearly 6 per cent. Yet, because of currency depreciations, almost 60 per cent of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices during this 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 US dollars.

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 per cent.

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 per cent.

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.

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

Since the outbreak of the war in Ukraine, energy prices have been quite volatile but are now expected to decline. 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 next year will still be 75 per cent above their average over the past five years.