Are Real Commodity Prices at multi-century Lows?

The graph below, courtesy of BHP Billiton CEO Chip Goodyear, was compiled from a variety of sources, including the US All Commodities Producer Price Index, US Consumer Price Inflation, US Bureau of the Census, Historical Statistics of the United States, and the Colonial Times, to 1970.

A small move on the graph represents several decades. According to the graph’s creator, "we find ourselves at a period of time which is, or rather close to it anyway, 2001/2002 when real commodity prices were the lowest they’ve been in the last 200 years which essentially puts them at the lowest price they’ve been in known history.”

click for larger graph


Chart courtesy of Mineweb


The  International Monetary Fund reached a similar conclusion — two years ago.

Cycles in Real Price of Industrial Commodities, 1862–1999

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Chart courtesy of IMF

Notes: Shaded portions denote the boom phase, and unshaded portions the slump phase, of each
commodity-price cycle. A boom (slump) is defined as a sequence of absolute increases (decreases) in the real price of industrial commodities.


Nominal and Real Price Indexes Industrial Commodities, 1862–1999
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Chart courtesy of IMF

The graph everyone’s talking about
Barry Sergeant
Mineweb, ’25-AUG-05 11:00

The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability
2002 International Monetary Fund

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What's been said:

Discussions found on the web:
  1. John East commented on Sep 3

    Understandably we tend to focus our attentions on the west, as is evident on all the charts shown above, but the commodity bull market is driven by the new industrial revolution in the Far East. This is a much more significant event than most Westerners realise, with mind boggling numbers (3 billion people are involved). In the absence of any major global event to stop it, I believe that it will be as significant as our industrial revolution.
    It is creeping up on us slowly. Commodity prices are rising rapidly from their low base, but improvements in agriculture and the low cost of manufactured imports are hiding the effects.
    I think that this will be a short lived interlude. Improving living standards and strengthening currencies in the growth regions will inevitably push up the cost of imports whilst commodity prices will continue to rise.
    This globalisation scenario doesn’t bode well for those of us who wish to maintain our standards of living, but it’s something that we are going to have to come to terms with.

  2. dsquared commented on Sep 5

    Colour me underwhelmed. CPI is simply:

    1) the cost of the commodities embodied in goods.
    2) the value added to those commodities
    3) the cost of services.

    Element 3) would tend to be rising over time because of the Baumol effect, so the only way that you wouldn’t get a systematic tendency for commodity prices to rise more slowly than CPI (generating charts like the above) would be if the value added was falling over time.

    I really can’t think of any sensible set of economic outcomes which *wouldn’t* give you a structural tendency for CPI-adjusted commodity prices to fall.

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