That commodity prices have been rising across the world for some time now is well acknowledged. But Martin Wolf goes one step further and argues that a global shift is happening in relative prices too, with commodities, particularly energy, becoming much more expensive, relative to manufactures.
He writes, "Over the six years to February 2008, the Goldman Sachs broad commodity index jumped by 288 per cent, the energy price index by 358 per cent, the non-energy index by 178 per cent, the industrial metals index by 263 per cent and the agricultural index by 220 per cent. If one deflates the rise in commodity prices given above by the increase in the unit value of exports of manufactures from high-income countries, one obtains the following increases in real prices: 147 per cent for all commodities, 192 per cent for energy, 77 per cent for non-energy, 131 per cent for industrial metals and 104 per cent for agricultural commodities."
The explanations have varied from the burgeoning demand from China and India led emerging economies, to rising biofuel production. Supply side constraints like civil wars and internal dislocation, bad harvests, rising energy costs, inadequate investment and higher costs.