Saturday, August 15, 2009

Commodity update

These charts are very similar, since the second chart is a subset of the first. I included the second chart mainly to show how dramatically the prices of raw industrial commodities have rebounded (+43%) since their lows of last December, reversing fully two-thirds of their plunge last year. But no matter what subindex you look at, prices are up across the board: textiles and foodstuffs are up only 14% and 12%, respectively, but metals are up 85%, fats and oils are up 61%, and livestock 46%. As I have said before, I don't think we can blame Chinese stockpiling for results like these. There is a lot of smoke here, so there must be a fire somewhere (i.e., rising global demand and/or easy money).

I also wanted to illustrate that while we hear lots of talk these days about companies being forced to cut prices, and how this makes the current environment deflationary, that is not a correct observation. Deflation is when the prices of everything decline. What we are seeing is a lot of relative price changes: some up, some down. More on this in a subsequent post focusing on the latest CPI release.

No comments: