Source: IMF Primary Commodity Prices. Note: 2016=100.
Commodity prices tend to be reflective of the complex relationships between their demand and supply on global markets. Scarcity is associated with a rise in prices, but other factors such as inflation may affect prices as investors seek commodities as leverage. The above chart depicts the price evolution of four major commodity groups:
- Food Price Index includes cereals, vegetable oils, meat, seafood, sugar, and other food price indices.
- Base Metals Price Index includes aluminum, cobalt, copper, iron ore, lead, molybdenum, nickel, tin, uranium, and zinc price indices.
- Fuel Energy Index includes crude oil (petroleum), natural gas, coal, and propane price indices.
- Fertilizer Index includes DAP (Diammonium phosphate), potash, and Urea (Carbamide) prince indices.
The fuel energy price index is a core index since it is a major input for others since the price of metals, fertilizers, and food is influenced by the price of energy. The production of a unit of food often requires fertilizers and energy.
While the period between the 1950s and 1980s saw a constant increase in the inflation-adjusted price of the key commodities, the period between 1980 and 2002 was characterized by a gradual and constant decline. This is better explained by a more extensive and liberalized global commodity market, putting pressure on prices with increased competition. From 2002 to 2010, commodity prices surged and became highly volatile, a process mostly the outcome of growing energy demands and tightening supplies, but mitigated by technological improvements in resource use efficiency.
Between 2015 and 2020 commodity prices and volatility abated but the outcomes of the Covid-19 pandemic, particularly disruptions related to quantitative easing and demand surges were associated with sharp increases in commodity prices. These were further exacerbated by the War in Ukraine from March 2022, particularly energy and fertilizers. Irrespective, food prices remain the most stable component of commodity prices, in part because they are an end-use for many commodities such as energy and fertilizers, implying the possibility to mitigate price changes with changes in sources, processes, and inputs.