Global commodity prices are projected to fall to a five-year low next yea
Published: Wed 30 Oct 2024, 7:14 PM
Updated: Wed 30 Oct 2024, 7:15 PM
General view of Dubai skyline. Photo by Neeraj Murali.
With prospects brightening for a sharp fall in global commodity prices in 2025, residents in the UAE can soon expect a big relief from the spiralling cost of living they have been grappling with during the past couple of years.
Global commodity prices are projected to fall to a five-year low next year owing to an oil glut that could limit the pressure on crude prices caused by a wider conflict in the Middle East, the World Bank has said.
According to the Washington-based multilateral lender, global commodity prices are forecast to fall by five per cent in 2025 and two per cent in 2026 after a three per cent decrease this year. Food prices are projected to fall nine per cent this year and four per cent in 2025, while energy prices are forecast to fall by six per cent in 2025 and two per cent in 2026.
Since many food items consumed in the UAE come from abroad, a drop in international shipping costs or tariffs directly affect local prices.
The World Bank said a decline in food and energy costs should help central banks control inflation, although conflicts could exert upward pressure on prices. The International Monetary Fund also reported in its latest World Economic Outlook that global headline inflation is expected to fall to 3.5 per cent next year, well below its 9.4 per cent peak in 2022.
Global factors, including rising import prices, have triggered a surge in inflation in the UAE. Although petrol prices, aligned with global crude rates, dropped in the UAE from Dh3.22 per litre in May, prices of most commodities, including food items remain very high.
During the first half of 2024, the UAE experienced a notable increase in the cost of living with rising rentals and commodity prices stoking inflation. Dubai’s inflation rate, as per the Dubai Statistics Centre, rose from 109.91 in January to 111.34 in May, influenced by costs related to housing, utilities, and transport. The UAE’s Ministry of Economy has implemented a price cap on nine essential goods, including cooking oils, dairy, and bread to tame inflation and insisted that retailers must obtain prior approval to raise prices.
Consequent to the price cap and due to other factors, including a decline in fuel prices, the annual inflation rate in the UAE slowed to 2.5 per cent in September 2024 from 3.38 per cent in the previous month. Inflation rate averaged 1.73 per cent from 1990 until 2024, reaching an all-time high of 12.30 per cent in December of 2008 and a record low of -2.71 percent in May of 2020.
According to Numbeo, Dubai’s ranking in the cost of living index surged from 138th at the beginning of the year to 70th by June, while Abu Dhabi’s rank jumped from 164th to 75th. Post-pandemic, Dubai and Abu Dhabi have seen rental prices more than double in some areas due to the demand from foreign professionals.
“The good news is that the global economy appears to be in much better shape than before to cope with a significant oil shock,” said Ayhan Kose, the World Bank Group’s deputy chief economist.
The World Bank expects the global oil supply to exceed demand by an average of 1.2 million barrels per day next year. In addition, several countries that are not part of the Opec or its allies Opec+ are expected to ramp up oil production.
The price of Brent crude oil is expected to average $80 per barrel this year, before falling to $73 and $72 per barrel in 2025 and 2026, respectively. The price of Brent dropped sharply on Monday after Israel avoided targeting oil infrastructure during its strikes on Iran last week.
In the event of an escalation of the conflict in the region, the World Bank anticipates a relatively short-term crude price spike. Assuming wider escalation would reduce the global oil supply by 2.0 per cent, the multilateral development bank forecasts Brent prices would peak at $92 per barrel before moderating to $84 per barrel next year.
The World Bank said this price per barrel accounts for 15 per cent above its baseline forecast, but 5.0 per cent above the average price for Brent crude in 2024.
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