Commodity prices to drop 14 per cent in 2012

26 January 2012

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26 January 2012 | Adam Leach

The International Monetary Fund (IMF) has predicted that commodity prices, excluding oil, will drop by 14 per cent over the course of this year.

The World Economic Outlook Update, published on Tuesday, proposed “improving supply conditions”, such as greater availability, accompanied by a “slowing” of global demand, would force the average market prices paid for the raw materials to drop in all categories apart from oil.

As a result of the reduced commodity prices, the IMF predicts global consumer price inflation (CPI) will ease. The report said: “In advanced economies, ample economic slack and well-anchored inflation expectations will keep inflation pressures subdued, as the effects of last year’s higher commodity prices wane.”

The report predicted inflation would fall to 1.5 per cent compared with a 2011 peak of 2.75 per cent. It also expected the ease in inflation to apply to emerging and developing economies as a result of food prices easing and a steadying in growth.

When it comes to oil prices, the report warned of rising geopolitical risks and predicted that although global activity was expected to fall, there would only be a marginal ease in prices. The IMF warned increased fear or an actual disruption to Iranian oil supply could have large repercussions.

The report said: “The oil market impact of intensified concerns about an Iran-related oil supply shock (or an actual disruption) would be large, given limited inventory and spare capacity buffers, as well as the still-tight physical market conditions expected throughout 2012.


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