Reviewing Global and Local Prices in H1 2023

Updated 7/22/2023 9:00:00 AM

The global economy has been hit by a series of crises since late 2019. The COVID-19 pandemic spread, followed by the Russian-Ukrainian war, has put significant pressure on international prices, especially for strategic commodities. In 2023, the world started to slowly recover from these crises; however, the inflationary effect remained in the scene.

In this Factsheet, Arab Finance will examine the remaining effects of these crises in the first half (H1) of 2023, which are reflected in the performance of the main global commodity prices, as well as the monetary indicators and policies in major economies and Egypt.

A mix of abundant supplies, low imports, and the extension of the Black Sea Grain Initiative contributed to the drop in cereal prices. Wheat prices fell by 16% to $651 per bushel ($25,628.7 per ton). Corn prices dropped by 26.2% in H1 2023. The Food and Agriculture Organization’s (FAO) Food Price Index, which measures the inflation in global food prices, fell from 130.2 in January to 122.3 in June.
Gold prices hiked by 4% to rise from $1,843 per ounce to $1,912 per ounce. The gold performance was backed by the stability of the US dollar and interest rates, event risk hedging, and central banks’ demand.
In H1 2023, energy prices hit low levels following tremendous high prices in 2022. The reduced demand, resulted from favorable weather conditions, the resilience of Russian oil supplies, and the surge in American production, eliminated the impact of the Organization of Petroleum Exporting Countries plus (OPEC+) and Saudi Arabia’s supply cut.
At the beginning of January 2023, the per barrel price of Brent Crude reached $82.1, and at the end of June, the price fell by 9% to $74.9. Similarly, the price of natural gas fell from $4.17 per million British thermal units (mmBtu) to end H1 at $2.7 per mmBtu.
Over the past few months, falling energy prices have helped to reduce headline inflation in major economies. Inflation in the United Kingdom (UK), the European Union (EU), and the United States OF America (USA) fell by a range of 1.4-3.4 percentage points between January and June to record 8.7%, 5.5%, and 3%, respectively.
In H1 2023, the Egyptian government allowed the currency to depreciate twice in January and March; this resulted in a 4% hike in the US dollar exchange rate from EGP 28.8 to EGP 30.94.
Unlike advanced economies, Egypt’s headline inflation surged from 25.8% in January to 35.7% in June. The inflation was driven by the hike in foreign currency exchange rates, which affected the prices of imported commodities, especially the strategic ones.
The inflation in fruits and vegetables remarkably increased from 24.6% in January to 46.5% in June.
Despite the fall in international oil prices, the high exchange rate pushed the government to increase gasoline prices in March by EGP 0.75-1 per liter. In May, the government increased the diesel price by EGP 1 per liter.
The Egyptian government used its monetary tools to manage this inflationary wave, as the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to raise interest rates in March by 2% to 18.25%-19.25%.