Commodity Prices Are Soaring Back to 2007 Levels

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Tuesday, 15 February 2011 05:43

The New York Times had a front page story that claimed that companies are being forced to raise prices as a result of rising commodity prices. There are two problems with this story.

First, commodity prices are just returning to their pre-recession levels. The Bureau of Labor Statistics crude goods index stood at 236.1 in December, slightly below the 236.4 level of December 2007 and well below the peak of 301.0 in July of 2008. So, the price pressure from commodities is considerably less than it was at the pre-recession peak.

The other problem with the story is that commodity prices are a relatively small portion of total costs. In principle, companies could easily absorb higher prices, since profit margins are at near post-war highs.

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