Commodity Prices Have Dropped

Chart of the Week for February 13 - February 19, 2009

The Reuters/Jefferies CRB Index ("CRB") is a broad measure of global commodity prices covering industrial raw materials, agricultural products and energy. As the graph above shows, the CRB rose sharply between mid-2007 and mid-2008. However as the world economy slowed down, fears of a deeper and longer than expected global recession contributed to a sharp drop in global demand for various commodities and their prices. The CRB declined by more than 50 percent between July 2, 2008 and February 11, 2009.

Businesses have been impacted differently. Raw material producers such as farmers and miners have been negatively affected with lower revenues. On the other hand, finished good producers such as manufacturers are benefiting from lower input costs. Consumers have felt the impact with gas under $2.00 a gallon across most of the country and the December Consumer Price Index ("CPI") virtually unchanged from a year ago. In contrast, the July 2008 CPI reported a year-over-year increase of 5.7%.

Should prices continue to fall alongside declining economic and growth prospects, deflation may become a major worry for investors, businesses and policy makers across the globe.

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