WASHINGTON — Commodity prices are rising rapidly, a factor that could lead to higher consumer prices and overall inflation in the U.S. and world economies. Commodity prices rose to a 71/2-week high Thursday and are up 8.5% from a year ago, according to the Commodity Research Bureau.
Prices for energy, metals and agricultural goods have all risen as demand for commodities has increased in a growing world economy. At the same time, supplies have remained relatively stagnant.
Unless the global economy changes dramatically, prices likely will continue to rise, says CRB chief economist Richard Asplund.
"The current commodity bull market is far from over," he says.
But Michael Helmar, senior economist at Moody's Economy.com, says the combination of an expected slowing in the world economy to a more sustainable pace and an increase in supplies to meet demand will lead to a softening in commodity prices in the second half of 2006.
Federal Reserve policymakers cited "elevated prices of energy and other commodities" as risks for inflation in their post-meeting statement Tuesday. Previously, the Fed, which raised interest rates for the 15th-consecutive meeting this week, had named energy prices but did not mention commodities.
That suggests the Fed is keeping an eye not just on energy but on rising prices for metals, David Rosenberg, chief North American economist at Merrill Lynch, said in a note to clients.
Bear Stearns senior economist Conrad DeQuadros says higher commodity prices are starting to be seen in prices of products at the intermediate, but not final, stage of production.
The big question is if those higher prices will begin to be seen by consumers or if they will continue to be absorbed by firms selling their products in a highly competitive price environment.
"Those increases could then eventually be passed along to the consumer," DeQuadros says.
Prices have been up for a variety of commodities:
•Metals. Metals prices are up nearly 30% from a year ago as a variety of metals products are sought for construction products, particularly in China, where an urban building boom is underway. Copper prices recently hit an all-time high, and gold, silver and platinum prices are all up by double digits.
•Energy. Oil prices have risen nearly 10% this month and wholesale gasoline costs have also increased. Analysts, including those at First Enercast Financial and Alaron Trading, say oil prices will likely climb higher because of strong demand.
•Agriculture. Prices for a number of agricultural goods have risen rapidly this year, particularly for products such as sugar, that are being used to make renewable fuels, such as ethanol.
