sometimes it requires a very long term
perspective to come to a view about what
will happen in the near future so to
think about the price of say iron ore
today it might make sense to consider
the cost of steel carried by the troops
of William and Mary in the Glorious
Revolution of 1688 or for that matter
the price of French guillotine steal a
century later or the expense of casting
cannons when Bismarck unites unified the
German states in 1871 a little too much
perspective perhaps focus in on the 20th
century then and the price of
commodities through a period of
industrialization Wars development and
globalization in that context the recent
experience for commodity prices looks
like the third big bubble for raw
materials the first peaked early in the
1920s the second came after the oil
shock of the 1970s and the most recent
as China moved a large proportion of its
population into cities going from a
closed economy to the world's second
largest as growth in China has begun to
slow while prices for raw materials have
collapsed you can see this also in our
second chart which shows the
relationship between the oil price and
inflation over time it's a logarithmic
scale but as you can see ultimately the
oil price tends to come back to
inflation the pointer of the history
lesson is to realize the collapse so far
is incomplete BCA research have compared
a basket of commodity prices against
consumer prices since 16 80 and over
time the two did not fundamentally
diverge at least for long demand for
what is pulled from the ground has risen
dramatically at times but this merely
serves to send geologists looking for
more technology improves as well as does
the productivity of extraction
transportation and manufacturing so a
decade when price rose is much faster
than inflation well that caused new
mines to be dug well sunk and shale to
be fractured to bring commodity prices
back into line with consumer prices now
well that's going to require another
fall by as much as forty percent
estimate BCA in terms of the oil price
think thirty dollars a barrel as a
reasonable estimate of what the long run
gests but also remember prices can
overshoot on the way down as well as the
way up in the long run or commodity
price inflation well it looks like it's
going to be dead