BERLIN (MNI) – Leading indicators are signaling rising commodity
prices over the medium term, the European Central Bank said in its
annual report published Monday.
Medium-term prospects for commodity prices are likely linked to the
international outlook for economic activity, the central bank remarked.
“As the global recovery takes hold, the supply and demand balance in the
oil market may tighten and non-oil commodity prices may face upward
pressures,” the report observed.
“Although it is difficult to project the future course of commodity
prices, various forward-looking indicators — such as futures prices and
expectations of investment banks and other professional forecasters —
consistently point to rising commodity prices over the medium term,” the
ECB said.
“While there is little monetary policy can do about the first-round
effects of a commodity price shock, second-round effects must be
avoided,” the central bank stressed.
In this regard, more flexible wage and price-setting mechanisms and
a credible monetary policy are key to ensuring that one-off changes in
commodity prices do not translate into higher inflation over the medium
term, the ECB said.
Empirical evidence suggests that a permanent 10% increase in the
prices of industrial raw materials leads to a rise in HICP inflation of
less than 0.1 percentage point within three years, with a very small
impact in the first year, the report stated.
A permanent 10% increase in food commodity prices is estimated to
add around 0.5 percentage point to overall HICP food prices and, given
that food items represent 19.2% of the HICP basket, 0.1 percentage point
to overall HICP inflation in the first year after the shock, the ECB
noted.
–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com
[TOPICS: MT$$$$,M$X$$$,M$$EC$,MGX$$$]
