According to a new reported released by the World Bank, food, energy and metals prices are likely to continue to face downward pressure in 2023, but inflationary pressures remain high as commodity prices remain above pre-pandemic levels, and consumers may feel little relief.
Commodity markets have been under pressure this year, with energy, food and metals prices all down sharply since the start of the year. Commodity prices have fallen 14% since January and are now 32% below the record high set in June last year, the World Bank said in its Commodity Markets Outlook report released on Thursday.
The World Bank now expects commodity prices to fall 21% this year, which would be the biggest drop since the pandemic, before stabilising in 2024.
The bank noted that metals prices are up about 10% this year, but this is due to a decline in metals prices late last year when a stronger dollar and demand concerns hit metals prices.
The bank expects non-energy commodity prices to fall 10% this year and a further 3% in 2024 due to weak global demand.
Generally speaking, when the fear of economic recession intensifies, the price of bulk commodities (such as energy, metals, etc.) will cool down due to weak demand, except for safe-haven commodities such as gold.
Inflationary pressures remain
Despite the decline in commodity prices, consumers are likely to remain under pressure as prices in all major commodity categories remain well above pre-pandemic levels, the World Bank said.
The bank singled out the impact on food prices, which, although expected to fall by 8% in 2023, will remain at the second-highest level since the 1975 food crisis.
"Rising food prices exacerbate food insecurity, disproportionately affecting the poor in many developing economies." The World Bank said, noting that annual domestic food price inflation in 146 countries averaged 20% in February 2023, the highest level in the past 20 years.
The bank also said higher food prices were partly offset by lower energy prices. Energy prices in the first quarter of 2023 are 20% lower than in the fourth quarter of 2022 due to lower oil and gas prices.
However, the bank expects energy prices to remain stable for the rest of the year, with the possibility of rising in 2024.
The shift in trade flows has helped lower commodity prices, with Russia's energy and minerals now flowing from Europe to emerging market countries such as India, the World Bank said. Coal and natural gas markets have also undergone significant changes in terms of trade flows.
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