Trends for basic prices

Behind the prices of products we buy like gas, food and clothing are the prices of basic products, sometimes called raw materials. The prices of these basic products seem to fluctuate much more. Where do economists see their levels going in the future? N.C. State University economist Mike Walden responds.

“Well, if you look at the 20th century, we actually saw a drop in the price of basic raw materials, things like lumber, copper, obviously oil. But around 2000 and then continuing until very recently we saw those prices take a dramatic change. In fact, they doubled over that time period, primarily due to the fact that we had a massive expansion of globalization, countries like China, India really expanding rapidly.

“And these countries were using more raw materials, obviously things like oil. Now recently in the last year or so, we’ve had a pull back. We’ve had very significant declines in the prices of raw materials. And so that sets up your question, is that going to continue into the future? Have we seen the peak of basic prices or is this simply a temporary lull?

“I tend to think — and I’m certainly not the final arbiter on this — I tend to think it’s a temporary lull. I think that some of the drop — or a large part of the drop, indeed — is due to the fact that the world economy slowed over the last three or four years due to the massive world recession, and once we do see economic growth regenerating and we actually see globalization expanding to areas of the world that it’s not expanded to, we’re going to have a revival in demand for those basic raw materials. So I think that the future is still pointing to higher prices for raw materials.”