Find the latest trends in prices for energy, food and metals

Falling prices for commodities such as oil, grains and metals, could mean the cost of doing business in the UK could begin to ease soon – though this reflects both weaker global demand as well as an improving supply situation.

It will still take time for the impact of past commodity price increases to feed through supply chains, and we do not expect any significant easing in consumer price inflation until early 2023. A key risk to the inflation outlook is the prospect of a renewed surge in energy prices, which is a big concern for Europe’s economic outlook as Winter 2022 approaches.

Global commodity prices have diverged in the last couple of months. Non-energy commodity prices have generally fallen back since early June – as rising interest rates, a stronger US dollar and concerns about a slowdown in the global economy have weighed on investor sentiment.

Prices for a range of industrial metals, which spiked following Russia’s invasion of Ukraine, are now back below their pre-war levels.

Food prices have softened too. For example, wheat is down 36% from its February 2022 peak, with initial concerns over disruption to Russia’s food exports diminishing and better-than-expected harvests in other major producers lowering global prices too.

However, global food supply conditions remain tight, thanks in part to high agricultural input costs (especially for fuels and fertilisers, but also labour, transport and packaging). This leaves prices sensitive to poor harvests, with ongoing droughts in several countries still a concern. Food prices are likely to remain a key driver of consumer price inflation in the UK through much of 2023.

Energy markets have been more volatile. Despite the prospect of a global economic slowdown over the year ahead—and less demand for energy—concerns over supply and the risk of further disruption are still dominating markets, suggesting prices are likely to remain high in the near-term.

Oil prices are being supported by sanctions against Russian exports, limited capacity among other producers and low stocks of crude oil globally. Although prices have dipped as global growth expectations have been paired back, the cost of a barrel of Brent crude is widely forecast to remain above $100 through to the end of this year.

Prices for petrol and diesel seem like they peaked earlier this month, but with refineries in Europe and the US reported to be operating close to their maximum capacity, fuel prices are expected to remain above the levels of recent years even if oil prices fall back further.

Perhaps the biggest concern for the economic outlook is the sharp rise in natural gas prices in the UK and continental Europe in recent weeks – as Russia has sharply scaled back pipeline gas deliveries. The growing prospect of gas shortages in some EU member states during the coming winter could trigger recessions in Germany and Italy, for instance, while adding a few more percentage points to their annual inflation rates.

For the UK, the risk of outright energy shortages is limited given the low reliance on Russia for its gas supplies – but futures prices imply that UK households and businesses would still be exposed to further, sharp increases in gas and electricity prices. Added to this, the prospect of energy rationing being imposed on European businesses threatens further disruption to supply chains in a diverse range of industries, including chemicals, paper & pulp, food & beverages, metals and machinery & equipment.

Find out more key analysis on current commodities prices from the Economics team at the CBI.

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