Commodity prices have been on a tear over the last 6 months. A United Nations index that tracks 55 food commodities is at a record high (see chart on right).
It's not just food.
2010 saw a wide range of commodity prices shoot up. Cotton was up 91%. Pallidium, used in autos and other manufactured products, was up 96%.
Increases in copper (up 35%) and steel (up 32%) were relatively modest, but both are expected to increase again this year with steel prices forecasted to rise 66%.
Oil, of course, was also up and is currently near $90 a barrel.
Bad weather is playing a role in in some of the price increases. Russia, Australia and other countries have experienced weather related crop failures. Speculators are also having an impact as investors try to take advantage of surging commodity prices.
But the primary drivers are the global economic recovery and growing resource demands from the developing world. China, for example, used about 60% more copper in 2010 than they did in 2007. They now consume about 40% of the world's refined copper output.
China also consumed 23% more oil and 18% more cotton and soybeans than they did in 2007.
Despite rising commodity prices, overall inflation is likely to remain relatively tame over the next year. High unemployment will keep labor costs in check, and due to the Great Recession the global economy still has excess capacity. But an growing number of forecasters are predicting inflation will hit hard in 2012.
But if your business is resource or commodity dependent, or your customers are resource or commodity dependent, it's time to start planning for increasing costs.
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