Ukraine war contributing to largest commodity shock in 50 years, says World Bank

Report warns energy and food price surges with highest increase expected for natural gas in Europe

An aerial view shows a tractor spreading fertiliser on a wheat field near the village of Yakovlivka after it was hit by an aerial bombardment outside Kharkiv on 5 April (Reuters)

The world is experiencing the “largest commodity shock” in 50 years because Russia’s Ukraine invasion led to disruptions in food, energy and fertiliser trade, said the World Bank.

Global food and fuel prices are forecast to rise to “historically high levels” till the end of 2024 because of the major shock to commodity markets, the multilateral bank’s Commodity Markets Outlook report said on Tuesday.

It noted that the gradual increase in energy prices over the past two years was made worse by the war. Inflation for food commodities – of which Russia and Ukraine are large producers – has been the greatest 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 fertilisers,” said Indermit Gill, the World Bank’s vice president for Equitable Growth, Finance and Institutions.

“These developments have started to raise the spectre of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy.”

Energy prices are expected to rise by more than 50 per cent in 2022 before easing in 2023 and 2024.

The World Bank’s outlook on commodities warned the cost of several foods will rise sharply. The UN food price index already shows they are the highest in 60 years.

“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 projected to rise by more than 40 per cent, reaching a record high in nominal terms in 2022. The price rise will put pressure on developing economies that rely on wheat imports, especially from Russia and Ukraine.

Other food price increases project barley to be at 33.3 per cent, soybeans at 20 per cent, oils at 29.8 per cent and chicken at 41.8 per cent.

Metal prices are projected to rise by 16 per cent in 2022 before easing in 2023 but will remain at elevated levels.

The World Bank said the highest increase will be in the cost of natural gas in Europe, which is expected to more than double. Prices are forecast to ease next year and in 2024, but will remain at a level that is 15 per cent more than in 2021.

“The war is also leading to more costly patterns of trade that could result in longer-lasting inflation. It is expected to cause a major diversion of trade in energy,” the bank said in its report.

Due to trade and production disruptions with the war, prices of Brent crude oil would be the highest since 2013 at an average of average $100 a barrel in 2022, 40 per cent higher than in 2021.