Long-term trends in commodity prices

This article in the Reserve Bank Bulletin looks at recent trends in commodity prices in a longer-term perspective – in the main from about 1906.

Commodity prices have declined over the last century by about one half compared to a decline in the price of manufactured goods of about one-quarter. Overall commodity prices trended down until about 2001 when they subsequently rose sharply – though still remaining well below their levels of a century ago. China’s industrialisation has played a unique role by virtue of its size – in earlier periods the rapid growth of Japan and Germany was accompanied by price falls.

In addition earlier commodity price booms led to a much bigger supply response than the current boom. The demand-driven recent oil price surge has likewise not moderated real oil prices which now stand at historical peaks. However there has been an investment boom in commodity sectors which should eventually produce a supply response. Demand however is growing strongly and manufactured good prices are being kept in check. Thus high real prices could remain for quite a while.