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Our Materials Price Index (MPI) fell 1% last week, resuming its
downward trajectory following the previous week's increase. As has
been the case since the correction began in the first quarter, the
decline was broad, with seven of the MPI's ten subcomponents
falling, reaffirming the downward momentum in commodity prices over
the past five months. The MPI is now 20.1% below its all-time high
established in early March.
Price declines last week were most significant in energy and
lumber. The energy sub-index fell 4.5% as oil prices slipped to
their lowest level since February. Brent Crude, the international
benchmark, settled below $100/barrel with prices reacting to
weakening macroeconomic fundamentals. Oil traders were spooked by
the 0.5 percentage point increase in interest rates by the Bank of
England, which they viewed as further evidence of reduced demand in
the near term. Lumber prices also declined last week, with our
sub-index falling 8%, its fourth consecutive weekly drop. Prices
fell to $505 per thousand board feet, a level last seen in
September 2021. Higher mortgage rates in the US have cooled housing
market activity, significantly lowering lumber demand.
Weaker demand expectations are weighing on commodity prices with
markets turning more bearish last week (ending Friday 5 August).
The US employment report showed that nonfarm payroll employment
rose a strong 528,000 in July, more than double the consensus
expectation. This was taken as a sign that the US Federal Reserve
will need to tighten more sharply than previously hoped. Whether
the US Federal Reserve and other central banks will feel the need
continue lifting interest rates into 2023 remains an open question.
Commodity prices, however, have peaked with this change upstream in
supply chains now beginning to migrate downstream into intermediate
materials. Our caution in the sanguine view of goods price
inflation is that spare capacity in energy markets and inventory in
metal markets remains low, exposing both to a potential rebound in
prices should there be any loss in supply or better than expected
demand.
Posted 11 August 2022 by Michael Dall, Associate Director, Pricing and Purchasing, S&P Global Market Intelligence
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
