Currency depreciation drives up food, fuel prices

By Zion Rufus 

Evident from the fuel scarcity plaguing major cities in Nigeria, the current economic volatility and shrinking value of currencies in most developing economies is driving up food and fuel prices. 

Besides plunging the world into chaos, and taking its toll on individuals and businesses, these elevated prices of energy commodities that serve as inputs to agricultural production have also been driving up food prices.

Oladapo Sonuga, Economic and Prudential Regulation Advisory shared in a LinkedIn submission: “I agree that our major problem has been fiscal stability, and this has been my argument all along. Remember, fiscal stability is outside the central bank’s mandate, so I wasn’t blaming the central bank for this. However, some choices of our past central bank governors have also contributed to the exchange rate volatility.”

“I’m sure you will agree with me that the expansionary policy pursued by Emefiele has also contributed to the severity of the current crises with inflation and currency depreciation. An excessive expansionary monetary policy eventually leads to currency devaluation both in the long run and short run. And this

devaluation could be either internal, external or both.”

Ayhan Kose, Director of World Bank’s Prospects Group and EFI Chief Economist shared that the combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many countries; what’s worse, policymakers in emerging markets and developing economies have limited room to manage the most pronounced global inflation cycle in decades. 

“They need to carefully calibrate monetary and fiscal policies, clearly communicate their plans, and get ready for a period of even higher volatility in global financial and commodity markets,” Kose pointed out in a World Bank briefing. 

Meanwhile, higher-than-expected energy prices could feed through to non-energy prices, especially food, prolonging challenges associated with food insecurity. Where wheat prices fell nearly 20% in the third quarter of 2022, agricultural prices are expected to decline 5% next year. The decline in agricultural prices in 2023 reflects a better-than-projected global wheat crop, stable supplies in the rice market, and the resumption of grain exports from Ukraine. 

“A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution, and support real incomes,” said Pablo Saavedra, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions. 

According to Saavedra, although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years.

Food price inflation in other regions including the Middle East and North Africa, Sub-Saharan Africa, Eastern Europe, and Central Asia averaged between 12 and 15%.

Since the outbreak of the war in Ukraine, energy prices have been quite volatile but are now expected to decline. The World Bank reports showed that after surging by about 60% in 2022, energy prices are projected to decline 11% in 2023. Despite this moderation, energy prices next year will still be 75% above their average over the past five years.

The price of Brent crude oil is expected to average $92 a barrel in 2023—well above the five-year average of $60 a barrel. Both natural gas and coal prices are projected to ease in 2023 from record highs in 2022. However, by 2024, Australian coal and U.S. natural-gas prices are still expected to be double their average over the past five years, while European natural gas prices could be nearly four times higher. Coal production is projected to significantly increase as several major exporters boost output, putting climate-change goals at risk. 


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