ISLAMABAD: The World Bank forecasted a significant drop in global commodity prices this year, but Pakistanis could expect 21 percent annual inflation in the coming fiscal year.
In its most recent Commodity Markets Outlook, the World Bank predicted that global commodity prices would fall at the highest rate since the Covid-19 epidemic began, casting doubt on the development prospects of nearly two-thirds of developing economies that rely on commodity exports.
“The price drop, however, is expected to bring little relief to the nearly 350 million people worldwide who face food insecurity,” the bank said, adding that while food costs were expected to fall by 8% in 2023, they would be at the second-highest level since 1975.
The announcement came a day after the Ministry of Finance predicted annual inflation of 21 percent for the next fiscal year, down from a record 28.5 percent in the previous fiscal year. The MOF also forecasts 3.5 percent economic growth in the next fiscal year, up from 0.8 percent in the current fiscal year.
Despite the drop, food costs will remain at a five-decade high.
According to the World Bank, annual food price inflation was at 20% in February of this year, the highest level in two decades.
“The surge in food and energy prices following Russia’s invasion of Ukraine has largely passed due to slowing economic growth, a mild winter, and commodity trade reallocations,” said Indermit Gill, Chief Economist and Senior Vice President for Development Economics at the World Bank.
“However, this provides little comfort to consumers in many countries.” Food costs will continue at one of the highest levels in the last five decades in actual terms. Governments should avoid trade restrictions and instead use targeted income-support initiatives to safeguard their poorest residents, rather than price controls,” he stated.
Commodity prices are predicted to fall by 21% in 2023 compared to last year. This year, energy prices are expected to fall by 26%. Brent crude oil prices in US dollars are predicted to average $84 per barrel this year, a 16 percent decrease from the 2022 average. Natural-gas prices in Europe and the United States are predicted to half between 2022 and 2023, while coal prices are expected to fall by 42 percent in 2023.
Fertilizer prices are also expected to decline by 37% in 2023, the greatest yearly drop since 1974. Fertilizer costs, on the other hand, remain near their recent highs, which were last seen during the 2008-09 food crisis. Pakistan’s key imports are oil and gas, as well as coal, wheat, and fertilizers, which account for about half of total imports.
“The decline in commodity prices over the past year has helped reduce global headline inflation,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of Prospects Group. Central bankers must remain vigilant, however, because a variety of factors, such as weaker-than-expected oil supply, a more commodity-intensive recovery in China, an intensification of geopolitical tensions, or unfavorable weather conditions, could push prices higher and reignite inflationary pressures.”
Despite the significant drops projected this year, prices for all major commodity groupings will remain significantly higher than their 2015-2019 average levels. Natural gas prices in Europe will be over three times the average in 2015-19. Energy and coal prices will also remain higher than their pre-pandemic levels.
“Metal prices, which rose slightly earlier this year, are expected to fall by 8% compared to last year, owing to weak global demand and improved supplies,” said Valerie Mercer-Blackman, Lead Economist in the World Bank’s Prospects Group. “However, in the long run, the energy transition could significantly boost demand for some metals, particularly lithium, copper, and nickel.”
The report’s Special Focus section assesses the performance of a variety of methodologies used to anticipate the prices of seven industrial commodities (oil and six industrial metals). The study’s major finding is that futures prices, which are extensively employed for price forecasting, frequently result in substantial forecast mistakes.