Commodities Bulletin #8 Macroeconomics

Instability and uncertainty are the order of the day on the commodity markets. Value growth in retail and services continues but inflation is still high, as are interest rates, with central banks continuing their course of monetary tightening. Investor confidence continues to decline and the failure of two major US banks has created an additional sense of insecurity. Also, the ongoing conflict in Ukraine and the emergence of a critical migration crisis in Sudan could bring further turbulence to the markets.

FALLING INFLATION & SUSTAINED SHELF PRICES

• 2022 was a complex year for the global economy. Sharply rising inflation has resulted in an unmanageable cost burden for companies, which have had to resort to increasing the final price to the consumer and adjusting to higher commodity costs, which rose very rapidly until last summer. However, the last few months have shown that the trends have now reversed and the downward trend in inflation is continuing, driven by falling energy and input costs (costs compared to a year ago: gas -57%, oil -22%, electricity -40%, fertilisers -67%, wheat -39%...).

• However, retail prices still remain high at the supermarket and the effects are particularly noticeable in the shopping trolley. According to data collected by Istat, the growth in the prices of food, household and personal care goods remains stable on a trend basis at 12.7%, thus exceeding April's inflation rate (8.3% on an annual basis) by four percentage points. In particular, there was an acceleration in the prices of unprocessed food (+9.3%) and a slight slowdown in processed food (+15.3%) on which the costs of processing and packaging, from glass to labels and caps, continue to weigh heavily.

• The accumulated pressure on company balance sheets along the supply chain linking imports, producer and wholesale prices, up to the final distribution sector, is still present. Companies are trying to contain inflationary dynamics for the coming months of the year, but losses in purchasing power of earnings and disposable income still have a decisive negative impact on household consumption and growth.

• In essence, we are still in the midst of inflation. The increases no longer reflect commodity prices but are slowing down and the new higher price levels have consolidated.

OVERVIEW FOOD PRICES & THE ENERGY SECTOR

The FAO Food Price Index confirmed consecutive price declines for the first months of 2023 in line with the downward trend that started last summer when price levels reached all-time highs under the pressure of inflation. In April, however, the trend stalled, registering an increase of 0.8 points (0.6 per cent) compared to March.

• The slight recovery in April was led by a strong increase in the sugar price index, along with a recovery in the meat price index, while the price indices for cereals, dairy products and vegetable oils continued to fall.

To learn more and catch up with the latest news on the commodity markets, download the full bulletin here: