Why raw material costs soared and what it means for the world: speculation & a weak dollar

[Hannah Bell]

Speculation and a weak dollar were 56.5 percent responsible for the sharp rise in prices.
April 07, 2008

Global raw material prices are soaring to ever-new record highs. The IMF’s Commodity Price Index, a leading index for global raw material prices, began surpassing its long-term trend line in September 2007. In February 2008, it rose 20.9 percent above the line. In a word, an “overshooting” phenomenon is occurring in global raw material markets.

Firstly, the analysis results showed us that speculation, a weakening of the dollar and geopolitical risks affected raw material prices more than the simple supply and demand. Speculation and the weakening dollar were found to be 56.5 percent responsible for the recent sharp rise in prices.

The weakening of the dollar is being accelerated as the United States is aggressively lowering interest rates. Payments for raw materials are mostly in dollars. Thus, a weakening dollar has created a decline in the real purchasing power of raw material-exporting countries. Subsequently, exporters raised prices to sustain purchasing power. Also, as expectations of inflation coincided with the weakening dollar, significant amounts of speculative money flew from financial markets into raw material futures markets.

Second, the analysis showed crude oil prices are most influenced by speculation, followed by geopolitical risks, the weakening dollar and supply and demand. Wheat price increases are likewise mostly caused by speculative investment, followed by export restriction policies, the weakening dollar and supply and demand, respectively.

...However, the quiet recent surge in global raw material prices can also be seen as temporary as speculation accounted for more than 40 percent of each product’s price fluctuations. This makes it hard to dismiss a possible big correction in prices as well...

http://joongangdaily.joins.com/article/view.asp?aid=2888329

[KillCapitalism]

1. It could also mean this:

http://en.wikipedia.org/wiki/Hyperinflation

[tama]

2. Speculation is just the foam

the natural capitalistic consequense of underlying fundaments of supply and demand. And global food stocks have been going down for several years; ie. (exponentially increasing) demand surpassing (linearily increasing) supply. Speculation just makes the collapse happen much faster and much worse.

Bottom line: growthism, meet the limits of growth. Good buy civilization model based on material growth.

[Hannah Bell]

3. yeah, i heard the same thing in '73. n.t