While international food and energy prices have moderated since their recent peak, they nonetheless remain elevated. Moreover, the surge has contributed to higher consumer prices and led to economic hardship across the globe. Millions of people, especially in poorer countries, are being pushed into food insecurity.
The World Food Programme estimates that 345 million people in almost 80 countries will face acute food insecurity this year—more than double the number in 2020.
Amid these challenges, policymakers must remain vigilant.
First and foremost, addressing inflation is a key concern, which means that monetary policy must remain focused on bringing inflation down. At the same time, fiscal policy should aim for gradual and steady tightening, and thus reduce the pressure on monetary policy to combat high inflation, while supporting the most vulnerable. As such, costly broad-based policies to mitigate the impact of higher commodity prices, including measures like price subsidies to limit the pass-through to domestic prices, need to be unwound and replaced by targeted measures to support vulnerable households.
Such actions would help avoid distortions that would prevent or delay adjustments to higher energy prices. In addition, they would preserve incentives for development of alternative green energy sources, and support fiscal sustainability. This would also have beneficial distributional effects, as energy subsidies tend to also benefit richer households. To minimize longer-lasting adverse effects of volatility in commodity prices, it is also important to ensure strong macro-fiscal institutions that can buffer commodity price volatility.
And domestic actions must not stand alone. Multilateral efforts are essential in achieving shared objectives of addressing food and energy insecurity. It is vital to sustain open trade in food. Moreover, free flow of trade in metal and mineral inputs that are critical for the green transition would also support energy security.