Commodity prices are falling, albeit from an extraordinarily high level. Since peaking in August, the RBA Index of Commodity Prices has fallen by around 6% in both Australian dollar and SDR terms. They have fallen by around 10% in US dollar terms over the same time.
The fall in Australian commodity prices fits with the mix of slower global growth and (perhaps) the unfolding of a supply side response as the mining investment boom starts to yield higher output. To date, the fall in commodity prices is tiny - after rising almost four fold over the past decade, a 6% fall is not yet significant. But the fact there have been four months of unbroken falls just might be. This hook lower in commodity prices in recent months just might be the start of a more significant turn the commodity price cycle.
Within the RBA series, prices for rural commodities are more resilient than for base metals, the latter are down 23% through 2011. It is this weakness that is perhaps a better guide to global growth risks rather than rural goods which can be heavily swayed by weather events and other supply side factors.
Also signalling a troublesome year ahead for resources is the fall in share prices of the big mining companies which are well off their highs as the market looks ahead at what are downside global growth risks in 2012 And this is despite some better economic news in recent weeks. In simple terms, the stock market is pricing in less rosy times ahead a hunch supported by the commodity price data.