The impact of commodity price fluctuations
While the 2010s were characterized by relative stability, the early 2020s have brought unprecedented input price turbulence, fueled by pandemic shocks, energy crises, and geopolitical conflict. As part of The Global Sourcing Risk Index, the ‘Input Cost Volatility Index’ draws on 10 years of Producer Price Index (PPI) data to track price fluctuations in raw materials and intermediate goods across countries. To provide a view of the countries and sectors most at risk from volatile commodity prices.
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Why it matters
Extreme volatility has a direct knock-on effect on supply chains. A supplier’s input costs might double in one year and plummet the next, destabilising long-term contracts, eroding margins, and derailing project schedules.
Turkey’s PPI inflation, for example, peaked above 140% in 2022, triggered by a currency collapse that left fixed-cost supply agreements severely exposed. Buyers who base sourcing decisions purely on today’s cost signals, without building in contractual flexibility, are absorbing a significant hidden risk.
What the data reveals about Input Cost Volatility in Supply Chains
The Global Sourcing Risk Index shows that the drivers of input cost volatility are global and interconnected, impacting both emerging and advanced economies.
The Drivers of Extreme Volatility: Turkey, Russia, & Saudi Arabia
The top of our index is dominated by countries where volatility is driven by distinct but powerful forces. For Turkey and Russia, currency collapse and geopolitical instability have created massive and unpredictable swings in the cost of imported goods. For Saudi Arabia, the driver is its deep exposure to global oil markets, where extreme price swings have become the norm.
These examples show how macroeconomic and geopolitical events translate directly into supply chain risk, eroding price stability and making long-term planning exceptionally difficult.
Developed Economies Are Not Immune to Price Shocks
A key finding of our index is that high input cost volatility is not limited to emerging markets. Several advanced economies, including Germany, Spain, and Australia, rank in the top 10.
Their vulnerability stems not from runaway domestic inflation, but from deep integration into global markets. Germany’s manufacturing competitiveness is threatened by gas price volatility, Spain’s construction sector is hit by steel price spikes, and Australia’s economy swings with global demand for its iron ore and lithium.
This highlights that industrial interdependence is, itself, a major source of risk.
Commodity Exposure in Latin America & South Africa
Countries like Brazil, Colombia, and South Africa demonstrate another facet of input cost risk: high dependence on commodity exports. Their cost structures are deeply tied to global demand for materials like iron ore, soy, oil, and coal. This makes their economies—and the supply chains within them—vulnerable to swings in Chinese industrial demand, global food markets, and energy prices.
For buyers, operating in these markets requires sophisticated strategies like flexible contracts and pre-emptive stockpiling to manage the inherent instability.
Are You Asking the Right Questions About Input Cost Volatility?
Input cost volatility is now a permanent feature of global sourcing. To build resilience, procurement teams must move beyond static, fixed-cost agreements and adopt more dynamic strategies.
- Are our contracts built for a volatile world? Do they include price indexation clauses tied to commodity benchmarks, structured review triggers, and clear walk-away rights?
- Have we partnered with our finance team to explore financial hedging? Can we lock in future prices for our most critical and volatile commodities to protect our margins and budget certainty?
- How strong is our supplier relationship management? Beyond the contract, are we proactively monitoring our suppliers’ financial health to anticipate the impact of cost pressures on their business?
