What do movements in the price of commodities say about expectations for the economy in 2012 and beyond? Food inflation in India has been a major determinant of policy in recent years, and has shaken up the economy. As Table 1 reveals, it has dropped considerably. This extends across most non-protein foodstuffs, as shown in Table 2; but wheat (and protein-intensive food, like poultry) is showing signs of resilience. The World Bank, however, estimates that the long-term trend for most food commodities is downwards. Table 3 shows the trend, which the Bank thinks will be sustained over the next few years.
Metals, meanwhile, tell an intriguing story. Table 4 shows the increase in prices across the board for those with industrial uses – tin, zinc, copper and so on – in the month of January. This is being taken by some analysts as an indication that industrial production is, in fact, recovering even more than standard figures show. For silver, and especially for gold, their use in industry is largely dwarfed by their use as a store of value and a safe harbour in economic storms. The price of gold, plotted in Table 5, is clearly tracking the same uncertainties that cause upheavals in the euro-dollar exchange rate.
Meanwhile, fuel prices and constricted supply can squeeze both the Indian economy and the government’s fiscal space. The market expects, judging by the oil futures prices in Table 6, that petroleum will moderate slightly over 2012, if staying above $100 a barrel. But Table 7 shows fears that the supply of natural gas will run up against racing demand, causing the futures price for December 2012 to be more than a third over that for this month. Supply clearly is the problem for commodities going forward; as Table 8 makes clear India’s domestic supply of coal has simply not kept up with the growth rate.(Click here for table & graph)
