하나은행 하나금융경영연구소

● Frequent extreme whether events and political instability in the Middle East including the unrest in Egypt led commodity prices of crude oil, industrial metal, and crop to soar.

● The rising prices may cause social instability, as well as economic slowdown resulting from strong inflation and tight monetary policy led by emerging countries, which are already observed in some countries.

The recent commodity price hike is a result of supply and demand imbalance and speculative forces combined.

● Demand for commodities has been boosted by a number of factors: growing domestic consumption and infrastructure demand in emerging economies which have been grown in full swing after the financial crisis, and faster-than-expected recovery of advanced economies.

● In addition, with the financial crisis stifling investment in commodity supply, temporary shocks on supply such as extreme weather and geopolitical risks have aggravated the supply and demand imbalance of crop and other raw materials.

● Other pushes for commodity prices include excess liquidity and low interest rate from quantitative easing in advanced countries, as well as liquidity inflow into the commodity market with a higher portion of commodities being included in investment portfolio.

The dramatic growth may slow down, but prices are still likely to remain at a high level in the long term.

● Developments in the Middle East in the 2nd half of the year may change the course, but the dramatic growth in prices is likely to slow down as a whole, affected by less impacts from extreme weather, weaker commodity consumption due to rising prices, and decrease in excess liquidity.

- The prices growth are expected to be highest for crude oil, followed by industrial metal and crop, considering supply and demand conditions.

● In the mid to long term, however, price instability may persist, owing to recurrence of temporary supply shocks, rise of resource naturalism, and more fundamentally, inability of supply to flexibly respond to growing demand with limited resources.

Skyrocketing commodity prices may heighten stagflation risk for the global economy.

● Growing inflation resulting from rising commodity prices may force major countries to adopt a tight monetary policy earlier than expected or to a stronger extent than planned, aggravating stagflation risk on a global level.

● Commodity investment may grow depending on how long the inflation risk will persist, but with closer coupling with other financial assets, they are likely to be less appealing to investors as a vehicle to hedge against systematic risk.