Commodity prices

  At the beginning of July 2008, the CRB index, widely used to monitor world trends in commodity prices, reached its highest peak ever. This was when a barrel of crude oil cost close to 150 dollars. Just seven months later, when the severity of the crisis had become evident, the index had lost more than half its value. Crude had fallen by 40 dollars but, from this moment on, it resumed its upward trend, which continued until just recently, halting in the last few weeks.

  In fact, until a short time ago, the historical trend in commodity prices had been downward compared with manufacturing prices. There was talk of the «paradox of plenty» affecting many countries with abundant natural resources that, nevertheless, were incapable of getting a foothold on the development train. This trend has changed in the last few decades, although today's price of a barrel of crude, for example, is still very close to the maximum prices recorded in the mid-1970s, in real terms. But it is undeniable that the appearance of emerging economies, with China at their head, has turned demand for energy, mineral and agricultural resources around. The production of these materials is also expanding but it's often unable to keep up with demand and tensions therefore arise.

  The fact that commodity prices are rising is highly significant. These prices have a direct effect on national inflation rates, affect prices related to production process components, disturb balances of payments and complicate monetary policy. Citizens notice their effect directly on their wallets when they fill up their vehicles with fuel or, in developing countries, when they buy rice or corn to survive. Importing countries see their disposable income dwindle when they have to pay more to consume the same amount of the product imported, and vice versa. Those benefitting the most are the regions that produce commodities, such as Latin America, particularly Brazil, Australia and parts of Africa, although they must bear very much in mind the fact that frequent price fluctuations often cause swings between opulence and poverty.

  But what possibly arouses the greatest concern is the growing volatility observed in commodity prices. Many blame these sharp changes in trend and even the very rise in prices on financial speculators. According to this interpretation, the growing presence of investors in commodities markets or capital entering commodity funds in recent years are distorting the market and causing bubbles that are destabilizing it. However, empirical studies have not managed to find any direct relationship between financial or speculative activity and price rises and volatility. In any case, it's not easy to clearly identify the influence of each of the many different factors that affect price formation for each commodity on the market at any particular time. For the moment, we can content ourselves with the fact that, if commodity prices go up, this is not entirely bad, as it very probably means that the world is in expansion and international trade is animated. And if they go down, neither is this entirely good, because it might be due to dwindling activity, although this reduction will help towards an eventual recovery.

All documents are in Adobe Acrobat format (PDF).
To view a document in PDF format you need the Adobe Acrobat Reader. If you don’t have it already loaded on your computer, you can donwload it now.