The World Bank recently published its Commodity Markets Outlook Report report detailing how several industries will be impacted in the coming months and years due to worldwide events. The main driving factor for these price hikes was the pandemic, but that has shifted to the Russian invasion of Ukraine. The war’s impact will primarily impact two commodities: energy and wheat.
Energy
Energy prices are 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. 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.
Because of war-related trade and production disruptions, 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 4 per cent compared to 2021. Prices are expected to moderate to $92 in 2023—well above the five-year average of $60 a barrel. European natural-gas prices are expected to be twice as high in 2022 as they were in 2021, while coal prices are expected to be per cent higher, with both prices at all-time highs.
“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
The World Bank commodity outlook also warned many foods are set to see steep rises in their costs. The UN food prices index already shows they are at their highest since records began 60 years ago. Wheat is forecast to increase 42.7% and reach new record highs in dollar terms. Other notable increases will be 33.3% for barley, 20% for soybeans and 29.8% for oils and 41.8% for chicken. These increases reflect the fact that exports from Ukraine and Russia have fallen drastically. Before the war, the two countries accounted for 28.9% of global wheat exports, according to JP Morgan, and 60% of global sunflower supplies – a key ingredient in many processed foods – according to S&P Global.
Wheat prices are forecast to increase more than 40 per cent, reaching an all-time high in nominal terms this year. That will put pressure on developing economies that rely on wheat imports, especially from Russia and Ukraine. Metal prices are projected to increase by 16 per cent in 2022 before easing in 2023 but will remain at elevated levels.
“Commodity markets are under tremendous pressure, with some commodity prices reaching all-time highs in nominal terms”, said John Baffes, Senior Economist in the World Bank’s Prospects Group. “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”.
Housing
Commodities are not the only industry impacted by price hikes. Data is still rolling in for Q1 2022, but in the fourth quarter of 2021, house prices, as measured by the House Price Index, rose by 9.4% in the euro area and by 10.0% in the EU compared with the same quarter of the previous year. This is the highest annual increase for the euro area since 2005, when house prices started to be collected, and since the fourth quarter of 2006 for the EU. In the third quarter of 2021, house prices rose by 8.8% and 9.3% in the Euro Area and EU, respectively. These figures come from Eurostat, the statistical office of the European Union. Compared with the third quarter of 2021, house prices rose by 1.9% in the euro area and by 2.1% in the EU in the fourth quarter of 2021.
Among the Member States for which data are available, fifteen showed an annual increase in house prices in the fourth quarter of 2021 of more than 10%. Prices fell only in Cyprus (-5.3%). The highest increases were recorded in Czechia (+25.8%), Estonia (+20.4%) and Lithuania (+19.8%). Compared with the previous quarter, decreases were only registered in Denmark (-4.3%) and Cyprus (-3.1%), while they remained stable in Finland. The highest increases were recorded in Estonia (+6.6%), Czechia (+5.7%) and Lithuania (+4.7%).