Food Prices Poised to Outpace Energy Costs in Emerging Markets
Rising food prices are on track to become the primary contributor to inflation in emerging markets, surpassing energy costs, particularly affecting African economies, according to a recent report from S&P Global Ratings.
The agency cautioned that food prices are expected to increase in the coming months, driven by supply constraints and soaring fertilizer costs. There is often a significant delay between the rise in fertilizer prices and its subsequent impact on final food prices.
This warning emerges amid heightened concerns over global energy and commodity supply chain disruptions, particularly due to escalating tensions in the Middle East surrounding the Strait of Hormuz, a critical passage for oil and fertilizer shipments.
S&P Global indicated that as fertilizer and transportation costs soar, further strain will be placed on global supply chains, which could contribute to rising food prices.
Shift in Inflation Dynamics
According to S&P Global’s analysis, headline inflation is beginning to rise again after a period of easing from the heights experienced in the wake of the pandemic. Many governments are attempting to shield consumers from escalating fuel prices through various tax cuts and subsidies, but the fiscal burden of such measures is growing increasingly unsustainable.
The report highlights a clear transmission mechanism: increased fuel prices raise transportation costs, while higher fertilizer costs lead to increased production expenses for farmers. This cycle usually results in elevated food prices within a few months.
Africa Faces Significant Vulnerability
African economies are particularly at risk, as households in this region spend a larger proportion of their income on food and beverages compared to those in other parts of the world. Data from the agency show that food expenses account for over 40% of household budgets in numerous African countries.
Madagascar stands out, with over 60% of consumption expenditure devoted to food, followed closely by Ethiopia, Guinea, Senegal, and Mozambique. Nigeria is also notable, with food making up more than 40% of household expenses.
The report further underscores that most countries in Africa are net importers of food, making them especially vulnerable to global price fluctuations. Food inflation was the dominant factor driving headline inflation during the global energy crisis of 2022-2023 in many African and frontier market economies.
Nigeria Experiences Surging Energy Inflation
S&P Global has noted a significant uptick in energy inflation within major emerging markets across Europe, the Middle East, and Africa (EMEA). Nigeria recorded one of the highest rates, with energy inflation estimated at approximately 20% during March and April, notably outpacing food inflation in the same timeframe.
This trend is particularly striking given Nigeria’s role as a major crude oil producer and the recent commissioning of the Dangote Oil Refinery. The report attributes the elevated energy inflation to the domestic refining sector’s reliance on imported crude and the ongoing effects of subsidy removal.
Among the analyzed countries, Nigeria and Turkey exhibited the most substantial increases in energy prices, while South Africa experienced only moderate changes.
Potential Acceleration of Food Inflation Ahead
Despite current trends showing energy prices rising more swiftly than food costs, S&P Global warns that food inflation could pick up pace in the latter half of 2025. Rising transportation and fertilizer expenses are anticipated to inflate agricultural production and distribution costs, putting additional pressure on food prices for consumers.
For African nations already grappling with increased living costs, currency pressures, and weakened household purchasing power, another surge in food inflation could exacerbate challenges to achieving price stability.
Impact of Geopolitical Tensions on Fuel Prices in Nigeria
Since the outbreak of the US-Israel conflict with Iran on February 28, petrol prices in Nigeria have surged by over 25% across major cities, mirroring global oil price trends and heightening the cost-of-living crisis that has persisted since the end of fuel subsidies in 2023.
Consumers are feeling the strain of supply shocks triggered by the conflict, with rising transport costs and prices of essential goods becoming increasingly burdensome.
Data on global petrol prices shows an average cost of N1,248 ($0.92) per liter in Nigeria as of June 8, compared to a global average of N2,058 per liter.
Analysts express optimism that higher oil prices could significantly boost Nigeria’s revenues as a key oil exporter. Increased oil prices could also enhance the nation’s foreign exchange reserves, aiding in financial recovery.
However, prolonged disruptions to oil and fertilizer supplies are anticipated to intensify inflationary pressures globally, particularly affecting developing countries that are heavily reliant on imports.
Economists suggest that the extent of the impact on Nigeria and other African economies will hinge on the duration of supply disruptions and the extent to which rising global commodity prices translate into domestic market increases.
