The purpose of this paper is toillustrate the channels through which rising commodityprices might affect countries in the Europe and Central AsiaRegion (ECA) in the short run and to indicate whichcountries are most likely to be significantly affected. Thispaper discusses the effects of the global food and energyprice increases on ECA countries from two perspectives: (a)impacts on the macro-economy through inflation, the tradebalance, fiscal accounts and growth; and (b) distributionalimpacts within countries. It aims to highlightvulnerabilities to rising commodity prices and discussessome policy interventions to mitigate the impact of risingprices. It puts the ECA experience in the context of thelast commodity price increase as well the recent globaleconomic crisis. Section one summarizes the state of globalcommodity markets. Section two discusses the mainmacroeconomic channels through which commodity priceincreases affect the economy. Section three discusses thepotential poverty impacts of the price increases and theability of countries' social assistance systems to dealwith the heightened need for social assistance. It alsodiscusses country responses to the crisis to date withreference to policies followed during the 2008 price hikes.Section four examines ECA's agriculture sector andpotential responses to the commodity price increase andprice volatility. Section five discusses the energy sector.Bank support to ECA countries to help deal with commoditymarket a development is discussed in annexes one.
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