Commodity prices have eased back from record high prices, according to new research from Clerical Medical tracking the price performance of twenty major commodities. Over the first six months of 2008 commodity prices increased by 25%, more than eight times the increase in retail prices (3%) over the same period.
Commodity prices subsequently declined by an average of 15% during July and August, reversing much of this increase. Overall, however, commodity prices rose by 8% during the first eight months of the year. The recovery in the value of the US dollar has been a key driver behind the recent drop in commodity prices.
Looking at sectors, energy prices are some 20% up on the year, which will not have escaped the average householder who has seen bills go up by somewhat more.
Commodities overall have gone up in price by 112% over the last five years which is nearly six times the rate of retail inflation, due to increasing demand and a limited supply in the short term. It may well be that the effect of the credit crunch will be to suppress demand, leading to an easing of pressure on commodity prices, which in turn should feed through into the prices in the shops. This added to an increasingly competitive enviroment will hopefully lead to inflation falling back within goverment targets.
