Why Are Commodity Prices Falling?

But the macroeconomic weakness in the US now goes beyond the decreased supply of credit. Falling house prices reduce household wealth and therefore consumer spending. Falling employment lowers wage and salary incomes.

In spite of falling oil prices, he brought this country up here.

Also, growth could be brought to an abrupt halt by falling world commodity prices.

Are Housing Prices a House of Cards?

But, though inflation is very low, and even negative in a few countries, something more must be going on, because commodity prices are falling relative to the overall price level. In other words, real commodity prices are falling.

Will Rising Interest Rates Torpedo Stock and House Prices?

The export earnings from agricultural commodities and raw materials for least developed countries are falling as prices decline.

Weakening electricity demand has tipped China s coal industry into severe distress, with many mines effectively bankrupt. Falling house prices are another classic indicator of a vulnerable economy, though the exact pace of decline is difficult to assess.

Falling prices and consumption, a consequent decrease in exploration, fall of kingdoms, the despair of ambitions, pride offended, bankruptcy.

Until now, the consensus view has been that this would be bad for output and employment. Keynes gave the reason in 1923 the fact of falling prices, he wrote, injures entrepreneurs consequently the fear of falling prices causes them to protect themselves by curtailing their operations.

Deflation is potentially a very serious problem, because falling prices and the expectation that prices will continue to fall would make the current economic downturn worse in three distinct ways.

With prices of finite fossil fuels rising and cereal prices falling to record world market levels, it is becoming economically interesting to use cereals, in addition to straw, for energy production.

Lower house prices throughout Europe are thus likely to be accompanied by weaker consumption demand, as in the US. In Germany, for example, house prices have remained relatively low and consumption weak.

Lower house prices throughout Europe are thus likely to be accompanied by weaker consumption demand, as in the US. In Germany, for example, house prices have remained relatively low and consumption weak.

Such homeowners knew that with rising prices they would be able to realize a gain by either selling their homes or increasing their debt, while in the case of falling prices they could simply hand over the keys to their banks. Given the uncertainty about future house prices, they could reasonably expect gains, which induced them to pay even more in the first place.

Cotton prices had been falling since August 1997, and in February 1998 stood some 8 per cent below mid 1997 levels.

The prospect of falling prices reflects the collapse of industrial production, the resulting high level of unemployment, and the dramatic decline in commodity prices. Industrial production is falling at double digit rates in the negative inflation countries, and the price index for all commodities is down more than 30 over the past year.

Economy downturn incomes fall some people can t repay mortgages banks sell defaulted houses at low prices house prices fall more people stop paying home mortgages banks sell houses again prices fall again ...

The prices of US homes are also declining at an accelerating rate, in many areas by more than 10 per year. The prices of traded mortgage backed securities have followed house prices down.

The scrap market, traditionally the most volatile, has maintained its unsteadiness, with prices increasing almost threefold in some countries in 2004 before falling again.

The prices of PC components (microprocessors, memories and hard drives) are falling and the costs of some telecommunication services are decreasing with market liberalization.

Now, exports to the US are falling while the yen has strengthened. Moreover, high oil prices in a country that imports all of its oil needs, together with falling business profitability and confidence, are pushing Japan into a recession.

Therefore, in the 2000 2003 period, despite falling prices of agricultural products in the world market, Vietnam's agriculture enjoyed continuous growth at 4 per annum.

Over tightening of domestic macroeconomic policies, especially those aimed at the real estate market, could heighten the risk of a slowdown, with house prices currently falling across China, owing to stringent government measures. Indeed, the situation is much like that of the 1997 Asian financial crisis.

The relatively low level of real house prices may also have had a curbing effect on consumption.

The growing gap between mortgage debts and house prices will continue to increase the rate of defaults. Many homeowners who can afford to make their mortgage payments will choose to default, move to rental housing, and wait to purchase until house prices have declined further.

This recalls a familiar historical pattern. Falling real (inflation adjusted) interest rates in the 1970s, 2002 2004, and 2007 2008 were accompanied by rising real commodity prices sharp increases in US real interest rates in the 1980s sent dollar commodity prices tumbling.

Falling prices mean a rise in the real value of existing debts and an increase in the debt service burden, owing to higher real interest rates. As a result, defaults, bankruptcies, and economic decline become more likely, putting further downward pressures on prices.

We cannot ignore high unemployment. Clearly, improving indebted households ability to refinance at low current interest rates could help to reduce their debt burden, as would writing off some mortgage debt in cases where falling house prices have left borrowers deep underwater (that is, the outstanding mortgage exceeds the house s value).

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Buying foreign gold did succeed in driving down the dollar s value in terms of gold. But domestic prices continued falling throughout the three months of the gold buying spree.

If anything, inflation is now falling further globally as commodity prices adjust downward in response to weak global growth. And gold is following the fall in actual and expected inflation.

Global output is probably falling faster than at any rate since World War II, except perhaps for 1974 1975. Under these circumstances, large excess capacity develops and commodity prices fall.

Falling Stars

Falling apart

These risks are already exacerbating the economic slowdown equity markets are falling everywhere, leading to negative wealth effects on consumption and capital spending. Borrowing costs are rising for highly indebted sovereigns, credit rationing is undermining small and medium size companies, and falling commodity prices are reducing exporting countries income.

Third, in countries running current account deficits, consumers need to cut spending and save much more for many years. Shopped out, savings less, and debt burdened consumers have been hit by a wealth shock (falling home prices and stock markets), rising debt service ratios, and falling incomes and employment.

In November, annual inflation in the euro area fell to a cyclical low of 0.3 , largely owing to the sharp fall in oil prices since the end of the summer. But falling core inflation (which excludes volatile energy and food prices) also points to weak aggregate demand.

When deflationary expectations are entrenched, as they are in Europe today, consumers and investors delay spending on the ground that prices and costs will be lower tomorrow. Those expectations become self fulfilling, because less spending means even less inflation and, in the worst case, falling prices.

Today s environment of falling oil prices enables the world to take that step. It should be modest, so that it is politically feasible flexible, so that it helps stabilize user prices and it should increase over time, to place the global economy on a more sustainable path.

Because many contracts are sticky (that is, not easily revised) in monetary terms, inflation and deflation would both inflict damage on the economy. Rising prices reduce the value of savings and pensions, while falling prices reduce profit expectations, encourage hoarding, and increase the real burden of debt.