BASSETERRE, St. Kitts – PRICES of commodities have been “surprisingly buoyant” after seeing sharp declines early this year and they are expected to continue rising in the coming year.
This information was revealed by the Research Department of the International Monetary Fund (IMF) after carrying out analyses on the prices of food, fuel, metals and other commodities over a three year period.
The report, issued yesterday (Dec. 30), indicated that commodity prices fell significantly entering 2009, as is expected during and after a global downturn. By the second quarter however, prices of these commodities rebounded “relatively soon”.
“This commodity price rally at the early stage of the recovery in global industrial production contrasts with past experience. After previous global industrial downturns, prices typically continued to fall or rose at very modest rates, far below the increases recorded this year,” the report stated.
Data presented in the report show that the IMF’s commodity price index rose by over 40% in an eight-month period in 2009, while after earlier downturns it rose by only five percent over a similar period. It must however be noted that commodity prices also fell faster and by larger magnitudes in the second half of 2008 than in previous recessions.
According to the report, the early rally in commodity prices is attributed to an increase in consumer confidence. Commodity markets therefore benefited from an expected improvement in near-term economic outlook.
“The initial impetus came from the perception that the worst of the global recession was over and that the wide-ranging public intervention had succeeded in lowering uncertainty and systemic risks in the financial sector,” the report stated.
Reasons for the increases in commodity prices varied according to the specific item. Fuel and metals prices rose by much more than prices of food or agricultural raw materials. Oil markets were supported by supply cuts from the Organization of Petroleum Exporting Countries supply; metals prices have made a rebound thanks to restocking in China; and favorable harvest outcomes have led to a weakening of the prices of some major food crops in the second half of 2009.
As it relates to 2010, the report noted that prices of many commodities “are likely to increase further”. The report explained that this is due to an increase in demand after the world’s economy continues a stable recovery and trading pace increases.
“Looking at commodity price prospects from a longer-term perspective highlights how prices are expected to remain high by historical standards.
“The effects of the crisis have been to reduce prices somewhat below their 2008 peaks, but demand is expected to continue rising at a solid pace as industrialization continues in emerging and developing economies,” the report projected.
