According to the World Bank’s newest Commodity Markets Outlook report, the war in Ukraine has thrown a big wrench in commodity markets. It has caused global patterns of trade, production, and consumption to shift in ways that will keep prices at historically high levels until the end of 2024, causing stagflation. It is a condition where economic development is slowed by inflation and unemployment stays high.
In 2022, energy prices are predicted to increase by more than 50% before reducing in 2023 and 2024. Non-energy prices, such as agriculture and metals, are expected to rise over 20% in 2022 and then moderate in subsequent years. Despite this, commodity prices are likely to stay significantly higher than the five-year average. Prices could be considerably higher and more unpredictable than they are now in the event of a lengthy war or increased sanctions against Russia.
Energy costs have risen at their fastest rate in two years since the 1973 oil crisis. The highest price rises since 2008 have been in food commodities (of which Russia and Ukraine are major exporters) and fertilizers, which rely on natural gas as a major production input (of which Russia is a major exporter).
According to the report, wheat prices are expected to rise by more than 40% this year, hitting an all-time high in nominal terms. Developing economies that rely on wheat imports, particularly from Russia and Ukraine, will be put under strain. Metal prices are expected to rise by 16 percent in 2022 before leveling down in 2023, although they will remain high.
The Russia-Ukraine war is also causing more expensive trade patterns, which could lead to longer-term inflation. It is projected to result in a significant shift in energy commerce. Some countries, for example, are currently looking for coal in more remote areas.
Simultaneously, some major coal importers may increase Russian imports while cutting demand from other significant suppliers. Because it involves longer transportation distances—and coal is big and expensive to transport—this diversion is expected to be more expensive, according to the analysis. Natural gas and oil are also seeing similar shifts.
The report calls on policymakers to act quickly to protect their citizens—and the global economy. Rather than food and fuel subsidies, it advocates for targeted safety-net programs including cash transfers, school feeding programs, and public job programs. Investing in energy efficiency, especially weatherization of buildings, should be a top priority. It also urges countries to speed up the development of carbon-free energy sources like renewables as an alternative to fossils.
