Soaring commodities

The ongoing commodity price boom continued in early 2008, notwithstanding the market turmoil and slowing growth in major advanced economies.

The IMF commodity price index rose by 44 percent from February 2007 to February 2008. Prices of many commodities—including crude oil, tin, nickel, soybeans, corn, and wheat—reached record highs in current U.S. dollar terms.

Strong demand from emerging economies has accounted for much of the increase in commodity consumption in recent years and has been the driving force in the price run-up. Biofuel-related demand has added to the demand for major food crops, especially corn.

At the same time, supply adjustments to higher prices have not kept up, especially for oil, leading to medium- to long-term low inventory levels in many markets.

Also, financial trends—including the effective depreciation of the dollar, falling U.S. policy interest rates, and emergence of commodities as an alternative asset class—have all contributed to the soaring prices.

source: IMF.org