Before The Storms: Commodity Prices On The Rise

A recent focus in commodity markets has been on the damage to petroleum drilling & refining facilities caused by Hurricane Katrina and potentially from Hurricane Rita as well as the resultant price effects. Indeed, versus before Katrina the Journal of Commerce (JoC)-ECRI index of industrial commodity prices was up 6.0% through last week and likely rose further this week. Much of the rise was caused by a 8.7% rise in petroleum products' prices.

Though crude oil prices rose only 2.5% (45.2% y/y), spot gasoline prices tacked on another 5.2% (49.5% y/y) in September vs. the August average. Daily prices for unleaded regular gasoline rose 6 cents yesterday after an 8 cent rise on Wednesday but, at $2.08 per gallon, the price was well below the late August high of $3.13. Natural gas prices in September have risen more than one quarter versus August (123% y/y).

Elsewhere in commodities markets, prices have not been quiet. Reflecting the strong metals market, the JoC metals price index rose 3.6% in September vs. August (4.1% y/y) bolstered by an 18% (-3.5% y/y) gain in steel scrap prices, a 7.5% (39.6% y/y) rise in zinc prices and a 2.2% (41.9% y/y) increase in copper scrap. During the last twenty years there has been a 43% correlation between the six month change in metal prices and the change in factory sector industrial production

Textile prices in September have risen just 0.7% (3.4% y/y) led by a 2.1% (-3.0% y/y) gain in cotton prices, but there have been fireworks in the miscellaneous category. Down year to year, prices for "miscellaneous" commodities rose 10% in September versus August. Structural composite panel prices rose more than one third vs. August (-5.0% y/y), framing lumber prices increased 2.7% (-13.3% y/y) while rubber prices bounced 8.2% (36.5% y/y).

Foodstuff market prices have been generally quiet as indicated by a little change year to date in the Commodity Research Bureau's food price index. Despite volatility in livestock markets, prices are 10% lower than last year reflecting lower pork costs and beef prices which have stabilized after earlier declines.

Ever the barometer of inflation expectations, gold prices surged more than 10% during the last two months to over $460/oz. in London. That's still slightly below the 20 Year high of just under $500/oz., but the elevated level of gold prices during the last few years clearly reflects a worry that the strength in energy prices will spill further into underlying inflation. In the latest University of Michigan survey, expectations for price inflation during the next five to ten years rose to 3.8% versus an expectation during 2004 of 3.2%.

Gold Prices, a 1999 article from the Federal Reserve Bank of Cleveland is available here.

Forecasts, Indicators, And Monetary Policy is a 1999 study from the Federal Reserve Bank of Philadelphia and can be found here.