What Goes Up...
It was only a few months ago analysts were talking about the possibility of $200/barrel crude oil and $5 to $6/gallon gasoline. Oh, how things have changed in such a short amount of time. Expectations for global demand across the entire complex of commodities have been ratcheted down significantly in response to the credit market crisis and the very real possibility of a protracted global recession.
Demand destruction is evident in crude oil and prices at the gas pump, but energy commodities aren't the only ones that have been hit hard. For example, copper prices have plummeted in recent weeks after flirting with record highs throughout the year. In fact, the red metal's price has dropped to a 3-year low and registered its largest one-month percentage decline ever. Nearly every other commodity metal has experienced a similar pattern. The drop in energy and raw materials prices is a pyrrhic ‘victory' in the sense that it reflects a tough economic environment, but on a positive note falling commodity prices do free up some cash flow for businesses and consumers. More importantly, however, is that these sliding prices have taken the spectre of inflation (or stagflation) out of the discussion. Thankfully so, since the last thing anyone needs right now is a reminder of the 1970s.
10-23-2008 1:25 PM