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.”
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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Frequently Asked Questions about this Article…
Commodity prices have fallen in 2014 primarily due to a stronger US dollar and a slump in demand, particularly for crude oil. The S&P GSCI commodity price index has seen a 12% decline in US dollar terms.
The stronger US dollar has contributed to the decline in commodity prices. As the Federal Reserve’s broad trade-weighted index rose by 5%, it made commodities more expensive in other currencies, leading to a decrease in demand.
Falling crude oil prices, which have dropped by 16%, suggest a slump in demand rather than an increase in supply. This can be a positive indicator for future economic growth as it may lead to lower costs for businesses and consumers.
No, not all commodity prices are declining. While crude oil and food prices have dropped, the S&P GSCI base metals index, which includes copper and aluminium, has remained stable since the end of 2013.
The stability of base metals prices, such as copper and aluminium, suggests that the decline in crude oil prices is more related to demand issues rather than supply, which could be a positive sign for future economic growth.
Food prices have weakened in 2014, with the UN Food & Agriculture Organization index down by 7% and dairy prices experiencing a significant slump of 29%.
The S&P GSCI commodity price index tracks the performance of a broad range of commodities. It provides insights into commodity price trends and their potential impact on the global economy.
Yes, falling commodity prices, particularly due to demand slumps rather than supply increases, could signal a brighter economic prospect by potentially lowering costs and stimulating economic growth.
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