The prices of oil and other commodities are in the news again.
And a split is emerging. It seems two schools of thought are developing to explain why the prices of oil, metals and now food have begun climbing. It is an important issue, because the nature of this new commodity run could determine whether the global economy comes back from recession with renewed vigour, or limps out of recession and will require many trips to intensive care for years to come.
In one camp is Roger Bootle, head honcho at Capital Economics. He has long argued that the main factor behind oil closing in on $150 last year was speculation. He says that speculators are at it again.
Speculators of course are only trying to second guess what is going to happen anyway. So blaming these people for all of the woes in the commodity market is not entirely satisfactory.
Mr Bootle says that they are betting on price rises for the simple reason that all these green shoots we keep hearing about have prompted them to anticipate future rises in demand.
But, warns Bootle in his weekly Telegraph column: “There is an element of circularity at work here.” Oil rises in price because demand is expected to rise. More expensive oil makes us feel worse off, and we cut back on demand.
In the other camp sits arch bear Liam Halligan, who used his weekly Telegraph column to argue that the surge in commodity prices is coming from the developed world.
In the latest BP Statistical Review of World Energy, released last week, an interesting fact emerged. It appears demand for oil from emerging countries outstripped demand from the West last year, and for the first time.
And that brings us to a prediction made here recently.
It seems that for the next few years we are going to see inflation and deflation work in tandem.
Manufactured goods for which the main input cost is labour, are set to remain cheap. We may well see deflation in these types of goods.
But, products for which the main input cost is raw materials are likely to surge in price. Oil, metals and, more worryingly, food, are likely to begin rising again.
The 2008/2009 recession saw a temporary reverse in the upwards trajectory of commodities. The fact is, supply is limited, demand is rising.
Is it affordable? Well yes, maybe, and for the simple reason the two forces may cancel each other out.
Rising oil and metals will hit our affordability, the falling prices in manufactured goods will help it.
This was the pattern we saw before recession descended upon the world, and it is the pattern we will see afterwards.
The only way the trend will reverse is if we start coming up with alternatives.
So, electric cars, solar energy, wind energy are the means by which we can make energy affordable.
Last week there was a report out on how scientists are looking to investigate how tarantulas and the like make webs that are so strong. You probably know, if webs were of the same thickness they would supposedly be stronger than steel. Lighter too, and very stretchy. If science could somehow mirror the methods used, we may solve the problem of shortages of metals too.
Maybe we need to create tarantula farms, and somehow work out a way of making the spiders much bigger, so that their webs will be more usable – and then all we need do is just hope they don’t escape.
© Investment & Business News 2013