Commodities may be signalling a brighter economic prospect

“The Standard & Poor’s GSCI commodity price index has fallen by 12% in US dollar terms so far in 2014.”

“The Standard & Poor’s GSCI commodity price index has fallen by 12% in US dollar terms so far in 2014.”

Summary below by Anthony O'Brien

Falling commodity prices is widely viewed as evidence of a weak global economy. But not always!

The S &P’s GSCI commodity price index has fallen 12% in US dollar terms in 2014. Crude oil has led the decline, dropping 16%, but food prices have also weakened – the UN Food & Agriculture Organization index is down 7%, with dairy prices slumping 29%.

The poor performance of this basket of commodities partly reflects a stronger US dollar – the Federal Reserve’s broad trade-weighted index has risen 5%.

Yet commodity price weakness has not been universal. In particular, the S&P GSCI base metals index – dominated by copper and aluminium – has not changed much since the end of 2013.

The stability of base metals suggests that falling crude oil prices can be linked to a slump in demand rather than an expansion of supply. This is a positive result for future economic growth.

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